• Monday, April 22, 2024
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‘Our track record as an investment manager puts us in a unique position’

‘Our track record as an investment manager puts us in a unique position’

Oladele Akinjo is the Head of Infrastructure Fund at Coronation. Akinjo, who is also a Senior Vice President within the Group speaks in this interview, writes Iheanyi Nwachukwu.

What are the primary reasons why governments alone cannot bridge the infrastructure deficits in Nigeria?

Well, you only have to look at the statistics. For instance, if you look at the National Integrated Infrastructure Master Plan (NIIMP), as a country we are required to spend about $2.3 trillion, translating to $150billion per annum, between 2020-2043. That is a significant amount of capital expenditure that is required to bridge infrastructure deficits. Of course, we know governments alone cannot fund this. The allocation for capital expenditure was about N7.23 trillion down from N7.9trillion in the 2023 budget.

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There are several reasons why government alone, and I am not sure there is any country globally, where government alone finances infrastructure. Quite the contrary, if you look at advanced countries and market-based economies, infrastructure development is led by the private sector from ownership to financing to operatorship.

But to answer your question, our biggest challenge is scarce resources. The government resources are constrained and while this administration is taking all the right measures to address this, it will take time before we start seeing the positive impact of these measures.

It means that the private sector must step in, now more than ever in complimenting the government’s efforts, not only in bridging infrastructure deficits, but ensuring that there is an integrated and comprehensive effort to compliment a lot of the ongoing policies and initiatives of the government.

As a strong member of the organized private sector, Coronation has and will continue to support the government’s efforts. Through the launch of our infrastructure fund, we hope to play an even more important role in supporting the government’s efforts to bridge the infrastructure deficit in Nigeria.

Is there a role private sector investment can play in supplementing the government’s efforts to bridge the infrastructural deficit?

The role of private sector cannot be over emphasised especially because Nigeria is a market-based economy. There are several roles that the private sector can play. For example, the pension funds represent a significant pool of liquidity providers who have and will continue to provide funding for infrastructure development through infrastructure fund managers like Coronation Infrastructure.

There are also infrastructure managers like Coronation Infrastructure Fund and private equity funds who mobilise both local and international funding for investment in infrastructure projects.

In the last 6-7 years, a number of private sector players and initiatives from infrastructure fund managers to infrastructure credit enhancement agency have played a critical role in this regard.

In addition, private sector participation allows for risk sharing, particularly under a PPP model, with the government.

As private sector participant, we bring our expertise to bear in identifying, mitigating and derisk project risks. We also ensure project bankability, which hampers a lot of private sector investment particularly in sub-Saharan Africa. So, from capital mobilisation to risk sharing, bringing our expertise to bear in ensuring project bankability, the private sector has a lot of role to play in infrastructure development in Nigeria.

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Are there specific policy measures that governments can implement to create a conducive environment for private sector participation in infrastructure projects?

We cannot overemphasise the role of the right policies and a sound regulatory environment. For example, we have seen how the Pension Reform Act of 2004, which introduced the contributory pension scheme, has transformed the pension funds in Nigeria. The Pension Fund Administrators are now one of the largest sources of funding both for the private sector and the government in infrastructure financing.

You see that by just that policy, the government has been able to transform that sector and mobilize private sector funding in a way that can be deployed into infrastructure and other spaces.

What I think the government needs to prioritise is the development of an efficient and robust ecosystem that supports infrastructure financing and development in Nigeria.

This policy could be in the form of an efficient PPP law and framework, further deepening of the rule of law and sound administration of judgment, empowering the private sector to originate and develop infrastructure projects as it relates to the government plan such as the NIIMP.

This government can do this by setting up project bankability funds and other incentives to drive private sector participation in this space. Furthermore, we want to see more of policies such as the Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme across other sectors. These are just some of the ways the government can deepen private sector participation in bridging the infrastructure deficits in Nigeria.

We also look forward to government support in deepening our capital markets especially as it relates to secondary market trading for long-term debt instruments such as the infrastructure fund.

Can you elaborate on the potential risks and opportunities associated with investing in infrastructure, particularly in the current economic climate?

There are risks inherent in virtually every investment you make. Here at Coronation, our job is to articulate as comprehensively as possible short to long-term risks and proffer mitigations for our customers.

As with every environment, there are a number of risks when you are investing long term in infrastructure projects. Market risk is one of them as we have seen changes in the global economy over the last three, four years. And that is not limited only to Nigeria, it is across the world. So, for us as an infrastructure manager, a major part of our investment process is the level of due diligence we carry out for every investment as we try to articulate as much as possible all the risks that are inherent in that project and in the sector as well as the country that we would be investing. We try to develop a robust due diligence framework that cuts across market risks, political risk, demand risk and foreign exchange risk, socio-political risk, business, finance risk and so on.

As an infrastructure manager, our job is to articulate these risks. Profile mitigations to them and ensure that we create processes and legal framework to protect us and our investors if the risk ever crystalise.

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We heard of the launch of Coronation Infrastructure Funds, what is it about, and what has motivated its launch at this particular time?

Our mantra here at Coronation is to create a legacy of sustainable wealth in Africa. We recognize that infrastructure plays a critical role in economic development.

So last year, we decided to set up a N200billion infrastructure fund. It is specifically a fund that targets investments in six sectors. And these sectors we call it Trust with an E. The sector includes Telecommunication, real estate, utilities with a special focus on water and waste infrastructure, social infrastructure, transportation, and energy. These are sectors that are critical for galvanizing economic prosperity anywhere in the world.

The idea for us at Coronation Infrastructure Fund is one, to complement the effort of the government in bridging the significant infrastructure deficit that we see in the market, but also create an attractive asset class for investors to desire stable, long-term investment over a long period of time. Inflation has been a major issue, globally not just in Nigeria.

Savvy investors are therefore looking for alternative assets that they can invest that guarantees them stable return over a long period in a manner that allows them to outperform inflation. That is the opportunity we are offering investors by inviting them to participate and invest in Coronation Infrastructure. It is a great opportunity for investors who want to help build infrastructure, empower communities, create jobs while earning stable and attractive return over a long period of time.

Given the growing interest in infrastructure investments, how will the Coronation Infrastructure Fund differentiate itself in the market and create value for investors?

Coronation, as a Group, is one of the most diverse financial services groups in Nigeria today. Our offering cuts across insurance to stockbroking, capital market, as well as banking. We are promoted by one of the most accomplished business leaders in Nigeria, Mr. Aigboje Aig- Imoukhuede. We have a dedicated board and investment committee members who have over 100 years of combined experience in investing in and managing infrastructure projects globally. We also have one of the most effective corporate governance in Nigeria as evidenced by our A rating from Agusto and GCR as an investment manager. We strongly believe that these unique qualities set up apart in how we source deals, identify opportunities, finance projects and management of our portfolios.

We have also developed a pipeline of strategic partners to enable us to find the right transactions to finance and derisk our portfolios where necessary. Investors can rest assured that our track record as an investment manager puts us in a unique position in how we manage their fund especially when it comes to risk management, deal structuring and financing as well as portfolio management.

Are there specific sectors or types of infrastructure projects that Coronation Infrastructure Fund is targeting and what factors will influence your investment decisions in these areas?

We prioritise investment in the T.R.U.S.T.E sectors: Transportation, Real Estate, Utilities (with emphasis on Water and Waste Infrastructures) Social Infrastructure, Telecommunication and Energy Sectors. These are the sectors that we think play an important role in the economic development of our country and poised for significant growth over the next few years.

However, beyond these sectors there are several other considerations we bring to bear before we invest including understanding the critical problem your company/project is trying to solve, track record and experience of promoters and management, all other issues around project bankability. We also assess your policy around Environmental, Social and Governance (ESG) framework. How are you operating and how do you deal with the communities in which you operate? We also consider things like women empowerment and your policy around labour management in your business Corporate Social Responsibility (CSR) and how you empower the communities in which you operate. For us at Coronation Infrastructure Fund, the financial return is just one of the factors, but not the only factor, we consider before we invest in any company or project.

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Infrastructure projects can be complex and then subject to various risks. How will Coronation approach risk management and ensure resilience of the infrastructure investment portfolio?

We are very big on ensuring that we apply the right risk framework in all our investments. Because we are investing for 10 years, 15 years, we see ourselves as taking risks similar to what the shareholders of the business will take. So, we have a very comprehensive risk management framework that ensures that one, we identify the right transaction and ensure it’s a bankable project, secondly we carry out an exhaustive due diligence covering every aspect of the investment and finally, enact a comprehensive portfolio management process to ensure we support the growth of our portfolio companies over time. We also have a very robust and independent investment committee. The members of that investment committee are accomplished individuals who collectively have over 100 years of experience of investing in infrastructure projects. So, we will leverage on their experience significantly in how we approach risk management.

In some cases, we work with independent parties to help us assess those risks. So, where we need to work with the independent legal counsel to help us look at the legal risk involved. Same as technical consultant to help us look at the technical risk involved as well as commercial advisor to help us look at the commercial terms and tax implication of what we are doing.

We will rely on those experts in how we make our decisions. And then a robust risk framework that is governed and overseen by our investment committee are also in place to guide us for every investment that we make. There is a lot of scrutiny at every stage.

We work with our portfolio companies in a way to help them grow and develop. We don’t want to invest in a way that our finances put a strain on the businesses or the ability to meet their business goals. hence a key cardinal part of our investment is structuring our financing in a way that it doesn’t encumber the ability of the companies to grow or where necessary raise new financing for expansion or next phase of growth.

What opportunity does Coronation Infrastructure Fund see in emerging markets like Nigeria? Are there plans to approach investment opportunities, particularly across Africa?

Africa is rich in abundant resources which invariably means there is significant opportunity for investors who believe in Africa and can successfully navigate the terrain. Our goal here at Coronation is to find and finance investment opportunities that we believe have the potential to transform African lives. So, whilst this fund is majorly focused on Nigeria, we are actively looking at opportunities across sub-Saharan Africa as long as the project is bankable and fits within our investment criteria and we see a lot of opportunities across every sector in Africa. For example, we are seeing a lot of investment appetite within the renewable energy space in Africa as the continent continues to grapple with the challenges of reliable and cheap power.

We also see a lot of opportunities within the transportation sector. There are a lot of countries in Africa talking about building corridors that connect countries. The private sector will have to mobilise a significant part of the financing required to fund such a noble initiative.

We also see a renewed interest within Africa’s solid minerals. For instance, as the world transitions from fossil fuel cars to EVs, many of the minerals needed to produce them, including cobalt, lithium, manganese are available in Africa and will require significant amount of Africa-led private sector participation.

We at Coronation want to be at the forefront of capital mobilisation and deployment especially as Africa plays at important role in energy transition over the next decade.

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Looking ahead, what are the fund long-term goals and aspirations for each investment, infrastructure investment portfolio?

We have a 20 billion series one offer currently opened to investors who are looking to tap into these unique opportunities and are looking for a stable return. But we are not stopping there. Our aspiration is to continue to attract global funding to finance investments across Africa. Our mantra at Coronation is to build a legacy of wealth creation for Africans and Africa. We believe through the launch of Coronation Infrastructure Fund, we have taken another step towards this goal and we are calling on partners to join us as we embark on this interesting and transformative journey.