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Germany launches local currency bond fund for Africa

Africa Global Funds
July 21, 2015, midnight
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The German KfW on behalf of the German Federal Ministry for Economic Cooperation and Development has launched the African Local Currency Bond Fund (ALCB Fund) to invest in local currency bonds in Africa.

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The German KfW on behalf of the German Federal Ministry for Economic Cooperation and Development has launched the African Local Currency Bond Fund (ALCB Fund) to invest in local currency bonds in Africa.

In addition, Lion’s Head and United Capital Asset Management have been appointed Fund Managers for the ALCB Fund.

Bim Hundal, Chairman of Lions’ Head, said the Fund is the latest innovative vehicle to have been established by the group, following similar initiatives in microfinance, agri-finance, interbank lending and foreign exchange hedging.

"Lion’s Head is known for financial innovation and pushing boundaries in the markets in which we operate and KfW has a long track record of promoting local Financial Sector Development in Africa. We are excited to add the ALCB Fund to our asset management platform. It exemplifies our commitment to bringing about change through the use of targeted, financially viable investment strategies,” he said.

The Fund aims to improve and diversify access to long term funding in domestic capital markets for the benefit of Micro, Small and Medium-sized Enterprises (MSMEs).

The Fund's mission is to support local African banks, financial institutions, agribusiness, and renewable energy companies to issue bonds and similar instruments in local currency.

KfW has so far invested $32m for the initial capitalization of the Fund, out of which $18.4m has been invested in seven non-sovereign local currency bond issuances.

The current investment portfolio include: Bayport Botswana; Bayport Zambia; Alios Finance, Gabon; HFC Bank Ghana; CRRH, Togo/UEMOA and Shelter Afrique, Kenya/Africa .

The fund managers, United Capital and Lion’s Head, expect to grow the Fund to a size beyond $100m in the medium term.

Karl von Klitzing, Member of the Board of Directors of the ALCB Fund, said: “Having proven the concept of an African non-sovereign local currency bond fund by sourcing and implementing the first investments and managing the fund by ourselves, we are very happy to now hand over a high impact and good credit quality portfolio to experienced fund managers, to bring the fund to a truly sizable scale."

Lion’s Head, a merchant bank based in London and Nairobi brings capital markets expertise to development finance initiatives for frontier markets.

Lion’s Head advises across a broad range of capital markets and corporate finance initiatives across Africa, working with both the public and the private sector.

United Capital, one of Africa’s leading investment banks, has extensive experience in high profile financial executions.

In 2014 the company executed the largest corporate bond issue in the Nigerian market, which was simultaneously listed on both the Nigerian Stock Exchange (NSE) and the Financial Market Dealers Quotation (FMDQ) OTC platform.

Other pioneering achievements recorded by United Capital include: completion of the first mortgage securitization for a mortgage backed bond in 2007; the first Tier 2 subordinated debt issuance through the bond market; and the largest corporate bond issuance in West Africa in 2010.

Wale Shonibare, Deputy Group CEO and Managing Director of Investment Banking at United Capital, said: “At United Capital, we are focused on delivering high impact innovative investment strategies for our clients. KfW has taken the first step in establishing the Fund to invest in local currency bonds in Africa."

"We believe that our African market expertise will allow us to provide the necessary tailored solutions to significantly grow the Fund, and to meet KfW’s development objectives," he said.

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