InfraCredit signs N37 billion agreement on portfolio risk sharing

InfraCredit, a specialised infrastructure credit guarantee institution and the African Trade and Investment Development Insurance (ATIDI), a pan-African multilateral development finance institution that provides risk solutions, have signed a counter-guarantee agreement on a portfolio risk sharing arrangement of N37 billion ($40.7 million).

This is meant to support seven infrastructure portfolio companies of InfraCredit across seven sectors including energy, healthcare, manufacturing (inputs to infrastructure) and logistics.

The signing of the counter-guarantee agreement is in line with the memorandum of understanding (MoU) executed by the two institutions in March 2022, under which InfraCredit and ATIDI agreed to collaborate and work together as risk-sharing partners, within the context of their respective mandates, policies, resources and instruments, to provide credit guarantees, co-guarantees and counter-guarantees/reinsurance on eligible infrastructure financing transactions.

The portfolio counter guarantee arrangement follows from the established strategic partnership between InfraCredit and ATIDI on a transaction basis, the first being the risk-sharing arrangement on a 10-year 10-billion digital infrastructure bond ($24 million equivalent) issued in 2022 and subscribed by domestic pension funds, the companies said.

Nigeria’s government aims to increase its infrastructure stock to up to 70 per cent of GDP in line with peer emerging market countries, which requires annual spending of above seven per cent of GDP over the next 30 years to close the infrastructure gap, increasing institutional investor funding of infrastructure is crucial.

In the Nigerian pension fund industry (with assets under management (AUM) of NGN18.3 trillion $11.8 billion), only around 1.5 per cent of total assets are invested in infrastructure debt even though pension funds are permitted to invest up to 35 per cent of their assets in corporate debt.

Credit enhancements, such as debt guarantees, on infrastructure project financings will help attract interest from lower risk appetite investors like pension funds.

This portfolio risk-sharing partnership with ATIDI is strategically important to enable InfraCredit to underwrite large contracts without over-exposing its balance sheet, introduce mechanisms necessary to manage single obligor limit and the portfolio balance, and bring diverse experience, know-how and credit quality to the guarantee portfolio thereby expanding access to domestic institutional investments to bridge the infrastructure deficit in the country.

Speaking on the signing of the counter-guarantee agreement, the Chief Executive Officer of InfraCredit, Chinua Azubike, stated: “We are pleased with the growth of our partnership with ATIDI, through this second risk-sharing transaction, a first of its kind local currency portfolio counter-guarantee transaction, which will enhance InfraCredit’s capacity to issue more guarantees that will reduce the cost of capital and crowd in larger scale domestic credit, particularly from local pension funds and insurance investors to finance infrastructure development in Nigeria. Our partnership with ATIDI is a strong demonstration of the vital role multilateral can play in helping borrowing countries’ debt levels remain sustainable, by leveraging their balance sheets as risk-sharing partners working alongside local institutions, to mobilise domestic resources from the private sector to finance infrastructure development in local currency while deepening domestic debt capital markets for sustainable development.”

The Chief Executive Officer of ATIDI, Manuel Moses: “ATIDI is committed to supporting InfraCredit in mitigating risks associated with infrastructure financing, thus catalyzing investment and fostering development in a vital sector. The portfolio counter guarantee provides a vital layer of protection, instilling confidence among investors and stakeholders while enabling InfraCredit to expand its reach and impact in facilitating access to affordable financing for critical infrastructure projects nationwide.

This collaborative effort underscores the shared vision of ATIDI and InfraCredit in driving sustainable growth, enhancing resilience, and advancing Nigeria’s infrastructure development agenda.”