Economic Confidential, April 2007

MONETARY

CBN To Invest $490 Million In AFC

By Tunde Akin

The financial forecasts on the proposed African Finance Corporation (AFC) indicate that the project would have an Internal Rate of Return of 39 per cent, as the Central Bank of Nigeria is to invest $490 million (about N62.72 billion) into the corporation.

The Governor of the Central Bank of Nigeria, Prof. Chukwuma Soludo disclosed this development in the AFC’s Information Memorandum released recently. He noted that the $490 million investment was subject to total public sector investments not exceeding 49 per cent.

The AFC, which is being promoted by the CBN as a private sector-led regional investment bank, is to be owned by financial institutions in Africa, multilateral and development financial institutions, pension funds, other institutional investors, high net worth private investors and Central Banks in Africa.

The corporation is aimed at bridging the massive gap in the funding required for the development of key economic sectors and its infrastructural outlay and creating significant returns to investors of the proposed institution.

“The forecasts indicate that AFC will be financially stable with strong, positive cash flows, enabling it to meet its business obligations in addition to the payment of attractive dividends to its shareholders. AFC’s mission statement is to be the leading international securities firm and investment bank in Africa with its leadership position defined by international investment grade risk rating, track record of profitability and delivery of positive returns to shareholders,” the CBN governor said in the memorandum.

The CBN had in December 2006 offered one billion ordinary shares of US$1 each of AFC through private placement. The corporation, which has an authorised share capital of two billion ordinary shares of US$1 each, is expected to commence business with a paid-up share capital of US$1 billion.

The focus of AFC is to include funding private sector led projects and the development of infrastructure across Africa. The corporation would offer a full range of financial products including loans, guarantees, risk management products, equity participation in private-sector led projects and venture capital. The corporation’s shares would be listed on one or more leading international stock exchanges within five years of operation.

The business practices of AFC will include: Securing adequate funding to enable it effectively support its target customers. This resolve is reflected in the authorised and issued paid up capital of US$2 billion and US$1 billion respectively; adopting investment banking and securities and advisory model with primary focus on advisory and placement fee income and capital gains from derivatives as main revenue drivers in delivering superior returns to shareholders; achieving international investment grade risk rating based on its structured business model, ownership and profitability; partnering and complementing leading international banks, multilateral financial institutions and local banks by delivering assets and financial products through local business development origination and developing a local clientele, through empowering indigenous business leadership as part of competitive strategy to grow Africa ’s real domestic economy.