Nigeria’s Infrastructure funds with a total committed capital of about N330 billion have been hit by reduced investors’ attention in 2024.
According to an analysis by BusinessDay, capital-raising efforts by some of the infrastructure fund managers have not recorded the kind of successes posted in previous years. The decline in investors’ attention is linked to the flurry of activities in Nigeria’s capital markets in 2024.
It is observed that a trend of undersubscription which traces back to 2023 has continued in 2024. Series 1 of Coronation’s N200 billion infrastructure fund issuance recorded a subscription of 43.95% as the company raised about N8.79 billion from its N20 billion offer.
United Capital achieved a 66% subscription for its N10 billion issuance in Series 3 of the United Capital Infrastructure Fund. At the time of reporting, there was no data on the Series 10 offer of Chapel Hill Denham’s Nigeria Infrastructure Debt Fund. However, the fund’s Series 9 offer of N26.8 billion recorded a subscription of 43.3% as of November 2023.
On the flip side, capital raising efforts by banks on the Nigerian major equities market, NGX has reached about N1.28 trillion. While one of the largest beer makers, International Breweries Plc raised about N516 billion through a rights issue, however, the bulk of the rights issue was a debt-to-equity conversion.
This huge volume of capital raises is tied to the recapitalisation mandate placed on the banks by the Central Bank of Nigeria (CBN) in March 2024.
On the fixed-income side, the CBN has issued about N9.7 trillion in treasury bills since the start of 2024, with interest rates on the one-year T-bills hitting as high as 22%, the highest ever in the apex bank’s history.
Although, there’s been a reported year-on-year decline in the volume of corporate bonds and commercial papers listed on the FMDQ this year, about N653 billion worth of commercial papers have been listed in 2024.
Oluwaseun Magreola, an investment manager with STL Asset Management highlighted some of the factors behind low participation in infrastructure fund issuances,
“One, Nigerians don’t like long-term play when investing. Infrastructure funds are mid to long-term play with most averaging 10 years. Nigerians are more drawn to short-term investing.”
He also highlighted the knowledge gap in that space, saying “A lot of Nigerians aren’t so savvy with infrastructure investing and there is a knowledge gap in that space for Nigerians. Hence, you see most investors shy away from such asset class to things they easily understand.”
“Another reason is the fact the fund managers haven’t yet cracked a way to make it accessible to the retail investor bucket. They target mostly institutional and high net-worth investors. If they can find a way to structure infrastructure funds to be more appealing and easily accessible by the retail class of investors, it would attract more traction.”
As of August 30, 2024, the total capital raised by infrastructure funds in Nigeria was about N330 billion (~US$200 million) with these funds managing assets worth N236.4 billion. Nigeria Infrastructure Debt Fund (NIDF) is the largest among these funds with a total net asset of N103.5 billion as well as an asset portfolio worth N108.6 billion.
NIDF is followed by Stanbic IBTC Infrastructure Fund with an asset portfolio worth N49.4 billion at the end of 2023.
Other Infrastructure Funds approved by the SEC in Nigeria are;
– ARM/Harith Infrastructure Fund
– Africa Infrastructure Plus Fund 1
– Africa Infrastructure Plus Fund 2
– United Capital Infrastructure Fund
– Actis
– Coronation Insurance Fund
$200 million Infrastructure Funds, a drop in the ocean
According to estimates, Nigeria will require about $3 trillion over the next 30 years to bridge the country’s infrastructure gap. Experts note that the country needs between $100 billion and $150 billion yearly over the next 30 years to bridge the infrastructure gap.
Also, a report by the International Trade Office of the US Department of Commerce noted that Nigeria’s infrastructure portfolio was about 30% of the country’s GDP, severely short of the 70% benchmark.
The estimated $200 million capital raised by infrastructure fund managers is still far from the amount needed yearly to bridge the infrastructure deficit. However, despite the relatively small amount, these infrastructure funds have been quite useful in providing financing for infrastructure.
For example, the Nigeria Infrastructure Debt Fund (NIDF) has an investment portfolio across 10 sectors, including power, telecommunication, marine, and gas, among others. Some of the NIDF’s investee companies include d.light, a solar power company, and Havenhill Synergy, a solar mini-grid supplier. A student accommodation provider, and Student Accomod8 has also accessed financing from NIDF for some of its purpose-built student accommodation.
ARM-Harith was involved in funding the Lekki Concession Company, the concessionaire of the Lekki-Ikoyi link bridge. It also invested in Main One Cable Company in Lagos.
Within the Nigerian context, these infrastructure funds play an important role, considering the level of underinvestment and significant infrastructure deficit facing Nigeria. Poor road networks, unreliable power, inadequate transportation systems, and housing deficit are some of the infrastructural challenges bedevilling Nigeria, and addressing these challenges requires substantial, long-term financing that the government alone cannot provide.
Pension funds are hardly investing.
A review of the July 2024 report on the pension fund industry shows that only about 0.8% of Nigeria’s pension fund assets are invested in infrastructure funds. According to the report, about N169.7 billion of Nigeria’s N20.9 trillion pension fund assets are invested in infrastructure funds.
However, it is quite perplexing that PFAs are seemingly disinterested in infrastructure funds considering the impressive returns provided by these funds. Between July 2023 and July 2024, infrastructure fund portfolios have provided a return of 32%, in contrast with the overall pension fund asset return of 22% during the same period.
It is should that there are regulatory challenges that plague the ability of pension fund administrators to invest in infrastructure funds. In June, Coronation Infrastructure Fund noted that it had to reject subscription offers worth about N2.14 billion due to the guideline limits on Retirement Saving Account Fund as per the Regulation on Investment of Pension Fund Assets (Regulation).
A glance through the Regulation produced by the National Pension Commission (PENCOM) helps to understand some of the restrictions placed on PFAs from investing pension fund assets in infrastructure funds.
For example, it is noted that any investable infrastructure fund cannot be less than N5 billion. Although the regulation tries to put in place a necessary benchmark for investment in alternative asset classes.
According to Section 7.3.6 of the regulation, it is noted that “Fund I, II and V shall each have a minimum of 2.5% of pension fund assets under management invested in alternative assets, namely Infrastructure, Private Equity and Real Estate Investment.”
An X user, @orekelewa_etc posted, “I think we need to let PFAs invest more in infrastructure funds. Pension and insurance are the backbone of infrastructure investment globally.”
In a 2024 study by Carlo, et al. in the Journal of Asset Management, it is noted that the global average infrastructure investment by pension funds, as a percentage of their total assets, increased from 2.4% in 2007 to 4.1% in 2018. The study noted that the infrastructure holdings of global pension funds were about $245 billion as of 2018.
In the past, the Nigerian government had touted plans to tap the N20 trillion pension funds assets into infrastructure investing. However, the most recent mention of this plan was met with severe opposition by stakeholders in the pension funds industry. It also gathered political attention with the PDP 2023 Presidential Candidate calling the plan “illegal”.
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