Norwegian State-owned fund Norfund is angling for small-ticket deals as it looks to deepen its appetite for businesses in Kenya and the rest of Africa, which are scouting to raise capital away from commercial bank financing.
The fund said that it will trim its transaction ticket size to about Sh645 million ($5 million) from the standard Sh2.6 billion ($20 million) to unlock opportunities for a wider pool of Kenya’s budding medium-sized businesses to access growth capital.
“Ticket size is a conundrum in the sense that when we invest close to one billion US dollars every year, it’s hard to deploy it if you do in ticket sizes of one, two or three million US dollars because you will end up having far too many companies to follow up” Norfund CEO, Tellef Thorleifsson, told Business Daily in an interview.
“Right now, we do this by investing in funds that then invest in smaller companies, but my team here in Nairobi is pushing for smaller tickets, and we try to do that at times because there are not that many homegrown companies that can take up large financing”, he added.
Since its inception in 1997, Norfund has made investments worth Sh80.3 billion in Kenya, with some of its notable undertakings being a significant shareholder in Equity Group through Arise B.V and also being a shareholder in I&M Group.
Norfund in 2023 also entered the African textile industry for the first time with two investments in Kenya. It made a Sh1.6 billion ($12.5 million) investment in textile and apparel manufacturing firm-Balaji Group, which operates from the Export Processing Zone.
Norfund also made a Sh1.8billion ($14million) investment in Hela Apparel Holdings PLC to support additional investment in its Kenyan manufacturing facility and build a sustainable local supply chain in East Africa.
The fund said it plans to increasingly structure deals that directly fit the needs of the Kenyan and African market as opposed to relying on indirect channels, such as through investee commercial banks, to invest in medium and small-sized firms.
Mr Thorleifsson said that by targeting the deployment of more small-ticket capital, Norfund looks to have a greater catalytic impact on the region’s funding needs.
“What we have been told is that when we have invested in a company, it provides a stamp of approval because people then know that there is a large shareholder with deep pockets that will be there to support the company going forward,” he said.
Unlike most development finance institutions that extend financing to businesses through debt, Norfund is designed to provide equity.
“Our structure is such that we are not leveraged on the balance sheet, we don’t take on debt in the holding company like most other development finance institutions," the CEO said.
As such, we are more like an evergreen investment fund and don’t have to produce stable returns and can take a higher risk and therefore do more of equity financing,” the CEO said.
“Our approach varies depending on the deal, but we typically 30 percent of a transaction in debt and 70 percent in equity,” Mr Thorleifsson added.
