Private institutional backer contributes $30 million to ALCB in initial funding round
The African Local Currency Bond Fund (ALCBF) has successfully raised $30 million (€25.6 million) through the issuance of a 10-year bond under its Euro Medium Term Note (EMTN) program. The bond transaction, completed with HSBC Continental Europe acting as a dealer, is expected to serve as a springboard for other investors to participate.
Managed by Cygnum Capital, an emerging markets-focused investment bank and asset management firm, the ALCBF has a local currency mandate that aims to enable businesses to match local assets and liabilities and support them to tap local institutional investors as a source of funding.
The ALCB Fund's strategy is designed to mobilize private capital in support of the Sustainable Development Goals (SDGs), primarily by issuing local currency bonds that attract domestic institutional investors such as pension funds, insurance companies, and private wealth funds. This approach reduces currency risk and aligns investor returns with local economic conditions, encouraging more sustainable infrastructure and development investments in African countries.
To mitigate risks related to local currency debt, the ALCB Fund provides guarantees or credit enhancements, making investments more attractive to private investors who otherwise might be wary of currency volatility and limited market liquidity. This strategy unlocks local pools of capital that traditionally favor U.S. dollar-denominated loans with shorter tenors, thus addressing maturity mismatches and reducing foreign exchange risks for borrowers.
The success of this strategy is evident in several ways. The ALCB Fund has tapped into large domestic institutional wealth that remains underutilized for local development finance, provided instruments linked to sustainability metrics, and enhanced fiscal space and reduced the cost of capital for African countries. Additionally, the ALCB Fund's investments have achieved a 9.1x private capital mobilisation ratio, meaning for every dollar it invested, an additional $9.10 was mobilised from local investors.
Since its founding in 2012, the ALCB Fund has invested over $420 million in African companies across sectors like financial inclusion, renewable energy, and affordable housing. The notes from the bond are listed on The International Stock Exchange, and the ALCB Fund's Baa1 rating by Moody's Investors Service makes it the second-highest rated Africa-focused investor, after the Africa Finance Corporation.
Robert Anson, vice president of debt syndicate at HSBC, stated that the ALCB Fund's bond transaction showcases how international bond markets can mobilize private investment for good. The ALCB Fund's investments have also demonstrated impressive resilience, with write-off ratios since inception being less than 2%.
In conclusion, the African Local Currency Bond Fund's strategy of issuing local currency bonds backed by guarantees attracts private institutional capital by reducing currency and credit risks and linking financing to sustainability goals. This approach helps close the SDG financing gap more sustainably and effectively in African markets.
- The ALCBF, through its local currency bond issuance, aims to support energy transition, affordable housing, and financial inclusion in African countries by attracting domestic institutional investors.
- The ALCB Fund's strategy of providing guarantees or credit enhancements for local currency bonds encourages more sustainable infrastructure and development investments, aligning with the Sustainable Development Goals (SDGs) and the United Nations' social impact objectives.
- By tapping into large domestic institutional wealth and achieving a 9.1x private capital mobilization ratio, the ALCB Fund has significantly spurred development finance in African markets, particularly in sectors like renewable energy.
- The ALCB Fund's success in issuing local currency bonds, backed by guarantees, demonstrates the potential for finance, investing, real-estate, and business sectors to work together in creating more impactful and sustainable development solutions in African markets.
