Ratio Magazine :: The Inside Track to East Africa’s Economies - East Africa Private Equity and Venture Capital Update

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East Africa Private Equity and Venture Capital Update

Friday, 28 May 2010

SME financing, infrastructure investments, first East Africa Private Equity Roundtable, and legal changes in the EU. Infrastructure

Among the large private equity funds, Citadel Capital have, after a tumultuous market entry, come to an agreement with Kenyan Trans Century over their joint investment in the Kenya-Uganda Rift Valley Railway (RVR). Trans Century had opposed Citadel’s acquisition of 48 % in Sheltham, one of the RVR consortium members, as they had pursued the same stake. Under the recent agreement, both companies have agreed to buy out the initial consortium members, leaving only Citadel with a controlling stake of 51%, Trans Century and a Ugandan shareholder. Discussions of the shareholder agreement and financing are ongoing.

What makes Citadel interesting as a shareholding in the consortium is not only the group’s infrastructure experience, but also the fact that Citadel Capital have cash – one of the bottlenecks in the much needed railway rehabilitation so far. This should hopefully help to create some momentum.

In the same context, Kenyan Centum have decided to divest from the RVR consortium and intend to sell their 10% stake in the consortium to one of the original partners for USD4.5m.

SME Funds

The SME funds have been busy, especially those backed by soft money:

Ayisi Makatiani and his team launched Fanisi Capital Ltd. in a well-attended ceremony. As the co-founder of Africa Online and a board member of Kenya Airways and Ogilvy & Mather,, Makatiani has a strong network in Kenya’s corporate sector, but the fund is backed mostly by development finance institutions (DFIs), with Norwegian NorFund as the anchor investor. Two foundations are also amongst the shareholders. So far, Fanisi has raised USD55m. At the launch, the company also presented its first investee, Craft Silicon, a Kenyan software. Several more deals are in the pipeline. DFIs backing means that Fanisi can offer its investees a technical assistance fund, too.
A little more than a year after setting up operations in Kenya, InReturn Capital Ltd – whose team have been supported with several AMSCO management contracts ‑ have closed their first deal, an investment in Subuiga General Merchants, a building material supplier. InReturn’s provides a subordinated loan that will finance a truck and provide working capital.
The African Seed Investment Fund, managed by AAC, has recently made two investments with a total committed value of KES144m (USD3.7m) in Western Seed Company in Kenya in a co-investment with Acumen Fund, and a UGX4bn investment in FICA Seeds in Uganda.

Also targeting SMEs in the region, Dutch private investors in particular have broadened their footprint:

Dutch E-Ventures Africa (EVA) (disclosure: EVA has also taken a stake in Africa Business Insight, the publisher of Ratio Magazine) focus on early stage digital and mobile companies and, after a first investment in Ghana, have acquired 45% in Jumuika, a start up that provides sms advertising services. Jumuika’s founders started out with a bulk sms service and are currently building this new service.
Dutch TBL Mirror Fund, a private equity fund focused on the SME sector, have raised EUR3m from Dutch FMO, bringing the total fund size to EUR10.7m. The fund was set up with contributions from private individuals, and TBL Mirror fund now has a group of 65 people. TBL are about to close their fifth deal. Amongst their first investments are an equity stake in Kencall and Software Technologies.

First East Africa Private Equity Roundtable

Together with pponsors African Development Bank (AfDB) and the Commonwealth, the Africa Venture Capital Association (AVCA), after moving its office from South African to Nairobi in early 2010, hosted the first East Africa private equity roundtable in Nairobi on 18 and 19 May 2010. The event’s focus was on raising awareness amongst pension funds that private equity can be an interesting asset class for such institutional investors. Despite growing interest in private equity in emerging markets, much of the PE funding in sub-Saharan Africa still comes from development finance institutions.

South Suez, a South African-based fund of funds, participated in the roundtable with a view to engaging pension funds from the East African region. They are currently funded by South African pension funds, but hope to broaden their investor profile.

Regulatory Changes in Europe?

The European Union's Alternative Investment Fund Managers (AIFM) Directive has raised concerns that fundraising in the EU for investments in sub-Saharan Africa might be restricted. The AIFM Directive is still being discussed in the European Parliament and Council and there are currently several versions. Alongside other venture capital associations, AVCA is preparing a submission to the Spanish Presidency of the EU, the European Commission as well as the European Parliament to register its concerns that

the directive may make it harder and more expensive for African fund managers to raise private equity funds, and also
it may become more difficult for investors from the EU, including European development banks, to invest in funds managed by AVCA members and other emerging market private equity fund managers that are domiciled outside the EU.

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