By Dipo Olowookere
The African Development Bank (AfDB) has taken a huge step aimed at stimulating Africa’s corporate bond market.
This it has done by approving $10 million equity investment in the Africa Financial Sector Deepening Fund.
The fund seeks to raise $100 million by the first closing and $200 million by the second closing and when completed, it should also strengthen the capital base of local financial institutions, especially those in the mid-tier category.
The investment is expected to last for 10 years and would be used to address the growing demand among local financial institutions for Tier 2 capital and to deepen local currency capital markets.
A statement issued by the regional lender explained that the approval of the fund on the platform of its private-sector window in the Africa Financial Sector Deepening Fund was being managed by Adventis Ltd, which acts as the fund manager.
AfDB explained that the fund would help to scale up investments in financial institutions to optimize and enhance their long-term capital base and develop local bond markets.
“Given scarce long-term local currency funding and underdeveloped non-sovereign local currency bond markets, the Fund will offer a significant private-sector demonstration effect by making sizable Tier 2 capital available to financial institutions.
“By leveraging capital structure and balance sheets, Tier 2 instruments will allow financial institutions to grow their lending and to scale up their long-term loan portfolio to support infrastructure, industries, and manufacturing, among other sectors, in the targeted economies.
“It will invest in mainly subordinated debt instruments issued by financial institutions, support bond issuances as anchor investors to be listed on local exchanges, and crowd in local institutional investors to scale up investments in financial institutions to optimize and enhance their long-term capital base and develop local bond markets.
“Based on market opportunities, the Fund has identified priority countries as Botswana, Ethiopia, Côte d’Ivoire, Kenya, Mauritius, Namibia, Rwanda, Tanzania, Uganda, Ghana and Zambia,” AfDB said in the statement issued on Saturday.
