Private equity, venture capital funds, and development finance institutions (DFIs) are opting for joint investments in the region to cushion against exposure to the rising cost of capital, inflation and forex losses.
The funds are also grouping to afford big ticket investments that would otherwise be out of reach of a single entity, thus allowing them to grow presence in the region.
Foreign PE and venture capital funds in the past decade deepened their hold on local businesses that sought capital injections, edging out the capital markets as a preferred option for financing.
They have, however, become more cautious recently, reacting to rising risk of failure of firms in a difficult economic climate, and rising cost of funds in their home markets.
Faizal Bhana, the director for Middle East, India and Africa at Jersey Finance told Business Daily that the co-investment approach has also become more attractive as funds hit their limit on jurisdictional, sector and foreign currency and counterparty risk exposures in the region.
“Previously, when capital was still cheap, inflation was low and there was certainty in foreign currency, you could get the big players coming in and taking a full ticket, because such an investment would give them more returns than they would get in fixed deposits or Treasury investments,” said Mr Bhana.
“We are in a market now where interest rates are high, cost of capital is high and the appetite by investors to take large ticket sizes is lower.”
Jersey Finance, a not-for-profit organisation, was formed in 2001 to represent and promote Jersey as an international financial centre, and is funded by the government of Jersey and members of the local finance industry. In Africa, it has a presence in South Africa, Nigeria and Kenya.
The move towards hedging against risk comes at a time when returns from foreign investments into Kenya have been reduced by the weakening of the shilling against the dollar, making it harder for funds to satisfy the rates of returns that they promise their investors.
One of Kenya’s biggest corporate deals last year —the sale of a stake in Naivas Supermarkets— involved co-investments between two groups of PE funds and DFIs.
The June 2022 deal saw the International Finance Corporation (IFC), German fund DEG, and private equity firms Amethis and MCB Equity Fund sell a combined 40 percent stake in the retailer to a consortium of Mauritian conglomerate IBL Group and sovereign wealth funds Proparco (French) and DEG for $151.97 million (Sh22.9 billion).
The consortium in July acquired an additional 11 percent stake in the retailer from the family of its founder Peter Mukuha Kago for an estimated $41.7 million (Sh6.3 billion), making it the majority owner of Naivas.
