Transcript Initial Public Offering from the Corporate Perspective - NBA-SBL

Nigeria Bar Association Conference 2015
Uche Orji, Managing Director & Chief Executive Officer
June 2015
Opening Remarks
ECONOMY UP
TO PRE-2014
NIGERIA
POST 2014
FUNDING
GROWTH
•
Post 2008 Financial Crisis, emerging markets received large inflows of investment as a
result of quantitative easing
•
Africa’s frontier economies experience growth rates that moved from an average of
3%/year in the 1960s to 6%/year in the 2000.
•
Nigeria was a beneficiary, increasing its GDP from US$206B in 2008 to US$522B* last
year.
•
Fundamentally strong
development needs.
•
Africa’s largest oil producer, facing a 40% reduction in crude prices
•
Scaled back budget as a result of devaluation and reduction in oil revenues,
•
Economic growth projected at “only” 4.8% this year (IMF). The economy is facing
challenges but its growth rate is still very strong.
•
In the short-term, Nigeria needs to get through its current cash crunch, and focus on
diversifying its economy and improving its infrastructure to fuel growth.
•
Identify and support sectors in need of support, particular those that are responsible for
driving economic growth: power, gas transportation and storage, logistics, SMEs, real
estate, and healthcare/education.
•
Create and fund institutions that can act as a catalyst to attract FDI to these sectors:
examples: NSIA, NMRC, Development Bank of Nigeria, Credit Enhancement facility
with Guarantco etc.
•
Strong support from Government to assist in attractive private sector growth by
focusing on responsible fiscal policies and act as a champion of key institutions and
projects.
economy
facing
short-term
challenges,
and
long-term
2
A Growing Role for Sovereign Wealth Funds Globally…
SWFs by Region
Middle
East
35%
Americas
3%
Asia
40%
Frequently Asked Questions
Europe
17%
Other
2%
Africa
3%
SWF Funding Source
Total Oil & Gas
Related
59%
Total Other
41%
Oil & Gas Funded
Non-Oil & Gas Funded
More new funds created in the last decade than in the previous 40 years. Since the crisis, SWFs have
become an increasingly important factor in economic development in emerging economies.
Source: Sovereign Wealth Fund Institute, July 2014
3
Largest SWFs (Ranked by Total Assets Under Management)
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
Name
Government Pension Fund Global (Norges Bank), Norway
Abu Dhabi Investment Authority, United Arab Emirates
Saudi Arabia – SAMA Holding
China Investment Corp., China
China Safe Investment Company
Kuwait Investment Authority, Kuwait
China - Hong Kong Monetary Authority, Hong Kong
Government of Singapore Investment Corp., Singapore
Qatar Investment Authority, Qatar
National Social Security Fund - China, China
Temasek Holdings, Singapore
Future Fund, Australia
UAE – Abu Dhabi Investment Council
Russia Reserve Fund, Russia
Korea Investment Corporation
Russia National Wealth Fund
Kazakhstan, Samruk-Kazyna JSC
Revenue Regulation Fund, Algeria
Kazakhstan National Fund
UAE-Dubai Investment Corporation of Dubai
UAE – Abu Dhabi International Petroleum Investment Company
UAE – Abu Dhabi Mubadala Development Company
Libyan Investment Authority, Libya
National Development Fund, Iran
US-Alaska Permanent Fund
Khazanah Nasional, Malaysia
Brunei Investment Agency, Brunei
US – Texas Permanent School Fund
AUM (US$ billions)
$882.00
$773.00
$757.20
$652.70
$567.90
$548.00
$400.02
$320.50
$256.50
$236.00
$177.00
$95.00
$90.00
$88.90
$84.70
$79.90
$77.50
$77.20
$77.00
$70.00
$68.40
$66.30
$66.00
$62.00
$52.80
$41.60
$40.00
$37.70
Rank
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
Name
State Oil Fund of the Republic of Azerbaijan, Azerbaijan
National Pensions Reserve Fund, Ireland
Strategic Investment Fund, France
New Zealand Superannuation Fund, New Zealand
US – New Mexico State Investment Council
Development Fund for Iraq
Canada Alberta’s Heritage Fund
US – Texas Permanent University Fund
East Timor-Leste Petroleum Fund, Timor-Leste
Social & Economic Stabilization Fund, Chile
United Arab Emirates – Emirates Investment Authority
Russia Direct Investment Fund
Oman State General Reserve Fund
Bahrain Mumtalakat
Peru Fiscal Stabilisation Fund
Pension Reserve Fund, Chile
Pula Fund, Botswana
Mexico Oil Revenues Stabilisation Fund
Oman Investment Fund
Italian Strategic Fund
U.S Wyoming, Permanent Wyoming Mineral Trust Fund
Heritage and Stabilisation Fund, Trinidad and Tobago
AUM (US$ billions)
$37.30
$27.40
$25.50
$21.80
$19.88
$18.00
$17.50
$17.20
$16.60
$15.20
$15.00
$13.00
$13.00
$10.50
$9.20
$7.00
$6.90
$6.00
$6.00
$6.00
$5.60
$5.50
Fundo Soberano Angolano, Angola
$5.00
Nigeria Sovereign Investment Authority, Nigeria
$1.55
4
The Boom in African Sovereign Wealth Funds…

African SWFs account for around 3% of all SWF assets globally (of which more than 80% is managed by Algeria & Libya). Over
the past three years, Nigeria, Ghana and Angola have established SWFs, managing $1bn, $100m and $5bn respectively,
opening a new chapter for Africa.

However, the continent is still in early stages of developing robust legislative policies, frameworks and guidelines for the
transparent and disciplined management of these SWFs – the success of which will largely determine the economic and
developmental impact of SWFs in Africa.
Country
Fund Name
AuM
(US$ Million)
Inception
Source
1
Algeria
Revenue Regulation Fund
77,200
2000
Oil & Gas
2
Angola
Fundo Soberano de Angola (FSDEA)
5,000
2012
Oil
3
Botswana
Pula Fund
6,900
1994
Diamonds
4
Equatorial Guinea
Fund for Future Generations (FFG)
80
2002
Oil
5
Gabon
Fonds Souverain de la Republique Gabonaise (FSRG)
400
1998
Oil
6
Ghana
Ghana Petroleum Funds
450
2011
Oil
7
Kenya
Kenya National Sovereign Wealth Fund
113
2014*
Commodities
8
Libya
Libyan Investment Authority (LIA)
66,000
2006
Oil & Gas
9
Mauritania
National Fund for Hydrocarbon Reserves
300
2006
Oil & Gas
10
Nigeria
Nigeria Sovereign Investment Authority
1,000
2011
Hydrocarbons
11
Rwanda
Crystal Ventures
500
2009
Businesses
12
Sao Tome and Principe
National Oil Account
-
2004
Hydrocarbons
13
Senegal
FONSIS
1000
2012
Non -Commodity
14
South Sudan
Oil Revenue Stabilization Account, FGF
-
2013
Hydrocarbons
15
Tanzania
National Gas Reserve Fund
-
2013
Hydrocarbons
Source: Sovereign Wealth Fund Institute, Investment Frontier, Dec 2013
5
Q4 2014 / Q1 2015 Transparency Rating by Sovereign Wealth Institute
2014
2015
In 2014, NSIA was upgraded from a score of 4 to a 9 and was further upgraded to a top 2nd in 2015. The Linaburg-Maduell
Transparency index is a method adopted by the Sovereign Wealth Institute for rating transparency in respect of Sovereign
Wealth Funds.
Source: Sovereign Wealth Fund Institute, Q4 2014 / Q2 2015
6
Key Trends SWF that will benefit Nigeria
 SWF’s Increasingly looking to co-invest in each other’s nations – Nigeria can benefit from
this…
– International Sovereign Wealth Fund forum and Institutional Investor Roundtable for SWFs have become
powerful forum for co-investment opportunities
– Examples: According to Oxford SWF project report, the following recent deals have happened
 Singapore’s GIC linked up with Australand Property Group to invest in Australia real estate.
 Khazanah has just linked up with India’s Infrastructure Development Finance Company in a joint venture
to develop road projects in India.
 Kuwait and Bulgaria SWF started a new firm to make investments in Bulgaria’s agriculture industry.
 Local SWF bring local knowledge and political cover, foreign SWF bring scale
 Smaller SWF’s using this as a tool to attract foreign direct investment as larger SWF
increase allocation to Emerging markets and real sector
 Norges Bank just announced EUR60bn allocation to emerging markets
 Republic of Georgia plans to use its $2bn SWF to partner co-investors
 Private Equity Firms looking to SWF’s as key planks for PPP project
– SWF’s more transparent and have the right philosophy
7
Case Studies: Norges Bank & Abu Dhabi Investment Authority
Fund: Government Pension Fund Global
Fund: Abu Dhabi Investment Authority
Country: Norway
Country: United Arab Emirates (UAE)
Inception Date: 1990
Inception Date: 1976
Seed Funding: $0.00
Seed Funding: $300 million
Size Today: $773 billion
Size Today: $882 Billion
Source of Funds: Oil revenue, investment proceeds
Source of Funds: Oil revenue, investment proceeds
Historical Returns: 30 year annualized returns–8.1%; 20
year annualized returns–7.4%
Historical Returns: Long term average return on
assets–5%
Portfolio Construction: Developed Equities: 35-45%;
Middle East Equities: 10-20%; Small cap Equities: 1-5%;
Government Bonds: 10-20%; Alternatives: 5-10%; private
Equity:2-8%; Infrastructure: 1-5%: cash 0-10%
Portfolio Construction: Equities: 60%; fixed income:
35-40%; Real Estate: 5%
Impact on Country:
Impact on Country:

Key to stabilizing Dubai during Financial Crisis
 Stabilization Fund indirectly instrumental to Norway
weathering the Euro Crises

Infrastructure Improvement in UAE coinciding with
SWF emergence as a global players

Future generations Savings Fund investing in High
Tec
 Norwegian government currently transfers $1bn a
week into the Fund.
8
Case Studies: Temasek Holdings & Kuwait Investment Authority
Fund: Temasek Holdings
Country: Singapore
Inception Date: 1974
Fund: Kuwait Investment Authority
Country: Kuwait
Inception Date: 1953
Seed Funding: $286 million ( grant of govt. owned assets)
Seed Funding: $ N/A
Size Today: $320 billion
Size Today: $548 billion
Source of Funds: State-owned assets, dividends,
divestments, borrowings, bond issues, periodic cash
injection
Source of Funds: Oil revenue, investment proceeds
Historical Returns: Annualized returns since inception–
17.0%; 20 year annualized returns–15%
Impact on Country:
Portfolio Construction: 60% fixed income; 35% equities;
5% alternative investments
Impact on Country:
Historical Returns: 20 year annualized returns–8.5%
Portfolio Construction: N/A

Economic stabilization and rebuilding of Kuwait after
first Gulf War

Continued stabilization of the economy through the
Infrastructure Investment in Kuwait.
 Commercialization, management, and eventual
sale/listings of state owned enterprises
 Instrumental to creation of industrial base in Singapore
– owning key strategic industries.
9
Case Studies: Other Examples
Country
Fund
Inception
Facts
Libyan Investment
Authority
January 2007
•
•
AUM: $66.0 billion
Income source: Oil revenues
Timor-Leste Petroleum
Fund
August 2005
•
•
AUM: $16.6 billion
Income source: Oil and gas
Pula Fund
1994
•
•
AUM: $6.9 billion
Income source: diamonds and
minerals
Fundo Soberano Angolano
October 2007
•
•
AUM: $5.0 billion
Income source: oil revenues
Libya
East Timor
Botswana
Angola
10
NSIA Funds: 3 Separate & Ring-fenced Investment Funds
1
2
Smoothing Fiscal Balances
20% allocation
The key objective of the Stabilisation
Fund is to provide stabilisation support
and augmentation to the Federation
revenue in times of economic stress.
3
Investing in our Future
40% allocation
Aims to invest in a diversified
portfolio of growth investments
to provide future generation of
Nigerians a savings base for
such a time as the hydrocarbon
reserves are exhausted.
Building the Backbone of our
Development
40% allocation
Aims to invest in infrastructure
projects in Nigeria that meet our
targeted financial returns and
contribute to the development of
essential infrastructure in Nigeria.
Each of the 3 Investment Funds is ring-fenced, holding at least 20% of assets under
management, with the distribution of the remaining 40% at the discretion of Management.
9
NSIA Timeline: The Journey So Far…
We believe that the pace at which the NSIA has set up its operations is ahead of its peer group of SWFs
Feb 2014
Dec 2013

Feb 2013
Development
of NSIA
Operating
Strategy


Aug 2012


June 2013
Dec 2012
NSIA
Board
Unveiled

Cambridge
Associates
appointed
Investment
Advisor
JPMorgan
Appointed
Global
Custodian
NSIA Opens
Custody
Account with
JP Morgan
Sep 2013

Investment
Policy
Statements
for FGF &
Stabilisation
Funds
Completed

NIF makes its
first 2
investments in
Real Estate and
Agriculture
Infrastructure.

FGN injects
additional
US$550m into
NSIA
April 2014

100%
deployment of
capital in the
Stabilisation
Fund
Oct 2013
Aug 2013
May 2013

Oct 2012

NSIA Board
Inaugurated
NSIA Moves
into Current
Offices


Stanbic IBTC
Appointed Local
Custodian

NSIA wins “African
Sovereign Wealth
Fund Initiative” of
the Year by African
Investor
NSIA accepted into
International Forum
for Sovereign
Wealth Funds as
‘Observer’


FGF invests 75%
of Absolute
Return
component,
100% of the Long
Only Equity
component, and
makes first
commitment to a
private equity
fund.
March 2015


NSIA
publishes
inaugural
Annual
Report, 2013
profit N500
million
Feb 2014
Jan 2014
September 2014
NSIA, through DMO
GtP fund, anchors
Seven Energy
$400m Bond raise,
investing $100m
dedicated to gas
pipeline
infrastructure.
December 2014
July 2014

NSIA, through
its corporate
subsidiary,
NMIC
commits to a
major
DFBOT Road
& Bridge
infrastructure
project.
NSIA received
improved
transparency
rating in the
LinaburgMaduell
transparency
index leaping
from joint 33rd
to joint 2nd
2014 financials are
published, showing
NSIA’s first full
year of
investments. 2014
profit is N15.7
billion.

October 2014

NSIA enters
into a
Collaboration
Agreement
with the World
Bank and
other SWFs
on a Global
Infrastructure
Facility
Completion of
acquisition of
private equity
interests
bringing total
commitment in
FGF to 80% of
total assets.
13
1. The Stabilisation Fund (SF)
Summary Overview
Fund Management Allocation

Objective of the Stabilisation Fund is to provide stabilisation
support to the Federation revenue in times of economic stress.

The twin mandate of the SF are capital preservation & liquidity.
The SF thus has a short time horizon and low returns target.
UBS
As at the end of 2013 all capital had been deployed in
accordance with the allocation to three managers: UBS (US
Treasury mandate), Goldman Sachs and Credit Suisse
(Corporate Bond mandates).
US Treasury
Portfolio


Due to the globally prevailing low interest rate environment,
the decision was taken to alter the augmentation of the SF
portfolio to provide incremental return to the mandate.

As such, Credit Suisse was replaced (from the Growth Assets
portion of the allocation) and the trio of Goldman Sachs, JP
Morgan and Legg Mason were mandated to provide absolute
return focused exposure across developed fixed income
markets.
Goldman Sachs, JP Morgan, Legg Mason
Absolute Return Fixed Income
Allocation Guidelines
Policy
Target
Growth Assets
75%
Benchmark
• Barclays US Universal Bond Index
• Libor 3 Month USD
• 91 Day Treasury Bill Index
Absolute Return Fixed Income
• Barclays US Universal Bond Index
Hedge Assets
25%
• Barclays 1-3 Year Treasury Bond
US T-Bills
• 91-Day Treasury Bill Index
US Treasuries 1-3 years
• Barclays 1-3 Year Treasury Bond
14
2. The Future Generations Fund (FGF)

The aim of the FGF is to invest in a diversified portfolio of growth investments to provide future generation of Nigerians a savings
base for such a time as the hydrocarbon reserves are exhausted.

The asset allocation policy reflects a balance between the Fund’s financial and investment objectives, risk tolerance and need for
liquidity

The deployment of capital in the FGF is being efficiently executed in accordance with the asset allocation below, but due to the
multitude of different mandates and market exposure taken, this process spans a longer period than that of the SF.

By the end of Q2 2014, capital had been fully deployed in the Absolute Return and Long Only Equity components (representing
50% of the allocation), whilst commitments have been made in the Private Equity and Other Diversifier components.

As of Q1 2015 80% of capital has been committed. The remainder will be opportunistically invested over time such that this Fund
can attain vintage year diversification within its illiquid program.
Allocation Guidelines
Growth Assets
Developed Equities
Emerging & Frontier Equities
PE, VC and Real Estate
Absolute Return
Other Diversifiers
Hedging Assets: Inflation
Commodities
Policy
Target
Strategic
Target
80%
80%
10%
15%
25%
25%
10%
15%
5%
•
•
•
•
•
•
•
•
5%
• 50% FTSE® EPRA/NAREIT Developed Real Estate
Index / 50% CA Private Natural Resources
Benchmark
5%
5%
• Citi World Gov. Bond Index (Hedged)-$
• U.S. T-Bill
15%
Hard Assets
Hedging Assets: Deflation
Cash
5%
Benchmark
MSCI All Country World Index
MSCI World Index
MSCI Emerging Markets Index
Cambridge Assoc. U.S. Private Equity Index
HFR Event-Driven (Total) Index
TBD
Weighted Composite
S&P GSCI (Equal Weighted)
15
3. Nigerian Infrastructure Fund (NIF)
Investment Strategy
Focus Sector Allocation
Nationwide Strategic
Impact
Free Trade Zones &
Industrial Parks
Oil
Refining
Communication
Attractive Commercial &
Social Returns
Conducive Legal / Regulatory
Environment
Catalyzes Private Sector
Participation
Agriculture
Aviation
Rail
Water
Resources
Motorways
Healthcare
Real Estate
Power
Ports
Gas to Power
Mining &
Basic Materials
Waste &
Sewage
Gas Pipeline,
Storage &
Processing
NIF Investment Portfolio
Focus Sectors
Sectors of Interest
16
3. Nigerian Infrastructure Fund (NIF): Focus Sectors
Motorways
Agriculture
Real-Estate
Healthcare
Power
Gas to Power
•
NSIA is actively pursuing investments in road infrastructure delivery and maintenance to improve the general state of
Nigeria’s roads, reduce the funding burden on the Federation Account and introduce private sector efficiencies to the
procurement, delivery and management of road infrastructure.
•
Consequently NSIA, in partnership with Julius Berger, is developing a project to finance, construct, operate and maintain
the Second Niger Bridge. NSIA has also committed to participating in the Lagos-Ibadan Expressway rehabilitation.
•
Agriculture is a sector of strategic importance to NSIA; Engagement in the sector is through direct investments in critical
agriculture infrastructure, strategic trading platforms and indirectly via agriculture-focused funds.
•
In December 2013, the Board approved a US$10 million commitment to the Fund for Agricultural Finance in Nigeria
(FAFIN), as one of three Fund sponsors, alongside the Nigerian Federal Ministry of Agriculture and Rural Development
(FMARD) and KfW, the German Government-owned development bank.
•
NSIA’s interest spans the entire real estate spectrum including affordable housing, commercial real-estate (office
buildings) and the hospitality sub-sectors (5-Star hotels etc).
•
NSIA recently invested US$10 million in the Nigeria Mortgage Refinance Company (NMRC) in December 2013, to
increase liquidity within the mortgage market, increase mortgage tenors, lower cost and improve access to mortgage
credit. NSIA has also committed to invest alongside Eagle-Hills for the development of the Centenary City in Abuja.
•
NSIA is interested in “high-impact, high-value” opportunities across the entire healthcare value chain, with a focus on
diagnostic centres, specialist medical centres and co-location PPP in federal medical centres and teaching hospitals.
•
As a result, NSIA has entered into strategic partnership agreements with the Federal Ministry of Health and leading
global healthcare sector participants to identify and invest in healthcare infrastructure projects. We have also signed
agreements with 4 Teaching Hospitals and 1 Federal Medical Centre to co-develop PPPs in Healthcare.
•
NSIA’s strategy is to invest alongside private investors in attractive projects across the power sector value chain. With
the ongoing transformation of Nigeria’s power sector through privatisation, there are numerous attractive opportunities to
participate in.
•
NSIA has incorporated a Power subsidiary with a commitment from a large foreign-based private equity fund to match
every dollar of NSIA investment with $2 of its own. We have since capitalised this business with an NSIA commitment of
$100 million and are in advanced conversations to invest in both generation and distribution businesses
•
NSIA is also pursuing investments in gas supply infrastructure for the purpose of supplying gas to the Nigerian electricity
generation sector together with other potential power related projects.
•
NSIA signed a commitment letter with Seven Energy, the indigenous integrated oil and gas development, production and
gas Distribution Company for an investment of at least $100 million. We expect that this investment will support the
development of Calabar NIPP, Ibom Power, and other power stations.
17
Catalyzing Growth
Given the issues facing the country, it is tempting to focus on the short-term. But, this is also an opportunity to fully consider
how to address the long term challenges of attracting FDI, save for the future, and focus upon key driver’s of our economy.
The country needs to build and support institutions that will catalyze growth. The largest SWF in the world, Norway’s NBIM,
with almost US$900B in assets, started in 1990, as the country was emerging from a recession and oil prices were
US$20/barrel. Today, NSIA is focused on the following:
1
Nigeria’s Sovereign Wealth Fund, NSIA
– Invests from its own balance sheet, but has also created sector-specific subsidiaries focused on power, roads,
agriculture, and other key areas.
– Partners with IFIs, SWFs, government, and private sector partners
– Provides an entry point to Nigeria for investors
2
Nigeria Mortgage Refinance Company
– Developing the primary and secondary mortgage markets by raising long-term funds from the domestic capital market
as well as foreign markets and thereby provide accessible and affordable housing in Nigeria.
3
Development Bank of Nigeria
– Formed by the Nigeria Federal Government and African Development Bank, the institutional will finance SMEs
– Initial capital will be US$1.5B
– Will provide long-term loans with grace periods.
4
The Fund for Agricultural Finance in Nigeria
– US$100M target agriculture-focused investment fund.
– FAFIN was sponsored by the NSIA, German Development Bank – KfW, and the Nigerian Federal Ministry of
Agriculture and Rural Development (“FMARD”)
– provides tailored capital and technical assistance solutions to Agriculture sector SMEs
5
The Credit Enhancement Facility
- Pipeline
17
Short-term Areas of Opportunity for Investors
1
Privatizations/ Sale of JV Assets
– As the new Government seeks to boost the economy, it will likely look to further privatizations of State assets.
– Privatizations that have been hampered by the need for further sector reform and support, may find further support from
government. One can anticipate that the power sector will likely be at the top of the new Government’s agenda.
2
Equity/High Yield Debt
– Financing of existing companies through low-interest bank debt will be more difficult.
– The market will need to offer higher return instruments to attract capital, as evidenced by bond yields, creating
opportunities for capital providers.
– There may be opportunities for companies to place debt instruments with off-shore and onshore pension funds, which
have traditionally shunned long-term Nigeria paper. The development of credit enhancement instruments may facilitate
this is is an area of focus for NSIA in the coming year.
3
Creation of Intermediaries
– Nigeria’s financial sector is still in its early stages. Unlike other high growth emerging markets, Nigeria has not yet been
flooded with a host of private equity and debt funds, financial institutions, and specialized products.
– Also opportunities to participate in non-financial sectors, such as educations, healthcare, agriculture, and other sectors.
Conclusion
Overall, we all know that the country faces a number of short-term hurdles, and these challenges can seem daunting.
There are no shortcuts to attracting debt and equity, just as there are no shortcuts to providers of capital. In the coming
years, the country needs to focus upon supporting institutions that catalyse growth, growing and supporting sectors
that have already undergone sector reform, such as power, and supporting growth in non-oil driven industries, which the
data shows are rapidly growing. Along with sound fiscal and economic policy, security, and stability, these steps will
attract debt and equity providers to Nigeria’s economy.
18
THANK YOU
www.nsia.com.ng
Confidential