Leveraging Pension Funds for Infrastructure Development

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Azubike

A landmark infrastructure project aimed at boosting growth in the industrial sector of Africa’s largest economy was recently inaugurated in Ogun State, arguably the fastest-growing industrial hub in Nigeria. However, the dream would not have become a reality, but for the intervention of InfraCredit, which facilitated a 10-year N10billion Guaranteed Infrastructure Bond via the Nigerian domestic pension funds of which 21 per cent financed the construction of the compressed natural gas (CNG) with an installed capacity 144,000 SCM per day, that operates a virtual pipeline system which will distribute gas to industrial firms reducing their energy cost by over 40 per cent. Bamidele Famoofo reports
GasCo Marine, a member of the Viathan Group, last Thursday, commissioned a Compressed Natural Gas (CNG) plant financed by the pension funds in Nigeria. The project which is strategically situated in Ogun State, one of Nigeria’s fastest growing industrial hubs, is targeted at enhancing productivity and easing the cost of doing business for medium scale enterprises in the real sector.
The plant, which is situated in Abeokuta, capital city of Ogun State, has an installed capacity of 144,000 SCM per day will extend virtual pipeline for gas supply to emerging corporates in the South-Western region.

GasCo Marine, wholly owned by the Viathan Group, is an integrated indigenous gas company that specializes in the production, transportation, storage, processing and sales of natural gas in Nigeria.
The Viathan Group is beneficially owned by Synergy Private Equity (SPEF) through Synergy Viathan Holdings. SPEF is private equity fund domiciled in Mauritius and focused on making investments in select high growth sectors in Nigeria and Ghana.
Raising of debt capital to finance the project was made possible by the guarantee of InfraCredit which facilitated raising of money for Viathan Group through Viathan Funding Plc, a special purpose vehicle established to raise capital, which successfully accessed the debt capital markets for the first time, issuing a debut 10 year N10.0billion 16.0per cent Series 1 Senior Guaranteed Fixed Rate Bond (the “Viathan Bonds”).
Given the irrevocable and unconditional guarantee of InfraCredit, the Bond is accorded ‘AAA’ long term national scale rating by GCR and Agusto & Co., a reflection of InfraCredit’s financial strength and credibility, which also ensured that Viathan accessed the debt capital at a cost lower than banks’ lending rate. The success of the Viathan Bonds, which was oversubscribed with 12 pension fund administrators accounting for over 90 percent of the subscription, further affirms the appetite and dedication of PFAs to financing long term, impactful infrastructure projects in the real sector.
https://ssl.gstatic.com/ui/v1/icons/mail/images/cleardot.gifAccording to Viathan Group, the successful financing of this plant from the debt capital markets affirms InfraCredit and domestic pension funds commitment to supporting new infrastructure that will provide access to cleaner and affordable energy supply for commercials, industrials, and households, in line with Nigerian government’s aspiration of reducing environmental pollution and conserving foreign exchange utilization on imported fossil fuels.
The plant is expected to increase the utilization of natural gas as feedstock to power plants and manufacturing plants by providing gas to areas without pipeline infrastructure (virtual pipeline). This will reduce gas flaring and Green House Gas (GHG) emissions, thereby promoting environmental sustainability, as companies and vehicles switch from expensive diesel to cleaner and affordable gas.
Gasco aims to target up to 1 million vehicles/trucks to switch to natural gas from diesel and petrol thus increasing its market share, whilst the mother station will account for 15 percent of established plant capacity in the Southern region.
Former Minister of Power, Works and Housing, Mr. Babatunde Fashola, who commissioned the plant, commended the facilitators of the project, noting that it is an evidence of some of the good things which the administration of President Muhammadu Buhari has achieved in its first four years in power.
His words: “I bring a strong message of commendation to Gasco Marine, Viathan Group and InfraCredit and to all of the people who were behind putting this project together. This is important because there are a lot of conversations going on in our country about what is not happening, but l don’t think the conversations about what is happening are getting the prominence that they deserve. You know we can complain about what is not working, but l say to people, you can believe or disbelief what l say but you can’t disbelieve what l do. Nobody can disbelieve what Gasco Marine, Viathan and InfraCredit have done here.”
Leveraging Pensions
According to CEO InfraCredit, Mr. Chinua Azubike, this impactful project would not have been possible without the commitment of the 12 domestic pension funds that invested in the guaranteed bond, the successful financing of this plant from the debt capital markets affirms InfraCredit’s commitment to mobilising domestic pension fund assets to provide long-term credit to the private sector and support new infrastructure development that will create jobs, protect the environment, reduce poverty and promote local economic growth.
InfraCredit is a ‘AAA’ rated infrastructure credit enhancement facility backed by the Nigeria Sovereign Investment Authority, GuarantCo (a Private Infrastructure Development Group company), KfW Development Bank and Africa Finance Corporation to provide local currency guarantees to mobilise long-term private capital for infrastructure financing in Nigeria. InfraCredit’s guarantees act as a catalyst to attract the investment interest from pension funds, insurance firms and other long-term investors into infrastructure.
Within two years of its initial operations, InfraCredit has through its guarantees, facilitated first-time access to local currency finance of up to 15- year tenor from the domestic bond market for two infrastructure companies totalling N18.5 billion which were oversubscribed by up to 60per cent from local pension fund investors, with participation by 14 of a total 28 pension fund administrators subscribing to the InfraCredit-guaranteed corporate infrastructure bonds. Whilst this represents 50per cent investor coverage, these 14 investor pension funds manage 75per cent of the assets under management of the pension industry, currently estimated at NGN 9 trillion as at March 2019, signifying strong investor appetite and confidence in the credit standing of InfraCredit’s guarantees.
“We believe we will achieve significantly more in building investor confidence and mobilising capital from the private sector with a more aligned approach, an enabling environment and coordinated relationships with governments and its agencies in unlocking up to NGN3 trillion of domestic credit to the private sector from local pensions funds, which represents 35per cent of investable funds that can be allocated to corporate debt securities to finance infrastructural development.”
Given that state governments continue to experience budgetary constraints in financing essential infrastructure projects and are weighed down by huge debts on their balance sheets, InfraCredit said it is exploring the development of new guarantee products that can unlock long term funding to support up to 20-year revenue bonds for private sector led infrastructure development in collaboration with eligible state governments.
Experts Comment
Commenting on the development, CEO, Stanbic IBTC Pension Managers, Mr. Eric Fajemisin, said Pension Funds played a significant role in the building of the CNG plant as it provided long term funding via its investment in the Viathan Bond. He argued that Investment by Pension Funds made it possible for Viathan to match its medium to long term capex objectives with the right tenor of capital at lesser cost to other funding sources.
“Prior to this transaction, Viathan would have used short term funding for medium to long term projects which beyond the mismatch would have significantly constrained growth opportunities. Pension Funds also collaborated with Viathan alongside other strategic partners to ensure that Viathan implements ESG initiatives in its processes. Thus, more employment would be generated by this transaction and the users of Viathan’s services will benefit from greater productivity at relatively lower cost,” he said.
Fajemisin noted that Pension funds have a strong desire to finance infrastructure development across the country as the cashflow from such well-structured projects should be significantly aligned with the nature of pension liabilities. It is however, very important to ensure that such projects have appropriate and sufficient risk mitigants in place. According to PenCom, as at March 2019, allocation to alternative investments, infrastructure assets inclusive was 0.69 percent (i.e. N61.7bn). Whilst the absolute percentage appears small, it is a huge leap from some years back when it was zero. Whereas there is significant scope for growth with the exposure the bigger challenge is the dearth of suitably qualified and well-structured infrastructure investment vehicles.
In his own view, the Managing Director/CEO of Axa-Mansard Pensions, Mr. Dapo Akisanya , attested to the role played by the pension funds to make the deal a reality.
“You may recall that the Viathan Group sponsored a bond issuance in late 2017, and construction of the CNG plant was one of the earmarked uses of the proceeds. In my opinion, the support of pension funds was greatly facilitated by the good economics of the underlying earmarked projects and, importantly, the credit enhancement provided by InfraCredit. The InfraCredit support mitigates some of the risks traditionally associated with domestic infrastructure investments,” he said. Akisanya, who doubles as the head of the PenOp Technical Committee hinted that pension funds accounted for between 85 and 90 per cent of the bond proceeds.
Impact
The Viathan Group said the impact of the company will be felt in three basic ways, which are social responsibility, environment and community.
In the aspect of social responsibility, the company said its operations will have a positive and tangible impact on energy provision for the nation.
“ GasCO Marine Limited ( GML), believe in the future of the Nigerian gas industry and its potential to have a positive and tangible impact on energy provision, the economy and quality of life of every Nigerian. This is why we have been intentional about building processing and distribution infrastructure that can deliver gas to the power stations and industries that need it. We strive to play a part in a sustainable energy future driven by natural resources, protection of the environment and energy efficiency. Our approach to social responsibility is governed by our parent company corporate responsibility strategy pillars,” a statement from the company hinted.
As touching the environment, GML said it has adopted policies and processes to ensure workplace protection and transportation safety of its employees. “At GML we train all our drivers on driving techniques and best practices on road safety. We integrate a strict HSE policy in all business processes, planning and decisions. Our production process ensures minimal to zero environmental pollution.
We strive to protect the environment by reducing emissions and waste and comply with the standards of environmental and industrial safety.”
Also, GML said it was committed to the prosperity of the communities in which it operates. “As an indigenous company we understand the importance of their livelihood and stability and are more responsive to their needs. Our CSR spend is influenced by inputs from our quarterly community relations forums which determine what projects we implement. In 2018, we built a 410 meter long by 7 .5 meter access road with a lay-by (41m long by 3.5m wide),” GML said.
The Viathan Group noted that, “The project has led to the creation of direct and indirect employment, the construction of the CNG mother station led to the creation of one hundred and thirty-seven (137) new jobs; during the construction phase, a total of 20 skilled workers and 80 unskilled workers, including 40 male and 40 female workers were employed. Post construction, thirty-seven (37) permanent jobs were directly created across various management levels within the organization.”

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