Diamond’s Atlas Mara Seeks $400 Million in Share Sale

By Ambereen Choudhury - May 14, 2014

Atlas Mara Co-Nvest Ltd. (ATMA), the investment firm backed by former Barclays Plc (BARC) Chief Executive Officer Robert Diamond, disclosed plans for a share sale that would raise about $400 million for future acquisitions.

The company will sell 36.5 million shares for $11 apiece to investors, Atlas Mara said in a statement yesterday.

Diamond, who quit Barclays in July 2012 after the British bank admitted rigging global interest rates, and Ugandan entrepreneur Ashish Thakkar raised $325 million for the venture in an initial public offering last year. They committed $20 million each of their own money to the company, which lists an address in Tortola, British Virgin Islands and has said it wants to focus on Africa.

The executives are targeting a region where a third of the economies are expanding at more than 6 percent, according to the World Bank. In March, Atlas Mara agreed to buy BancABC, which offers financial services in Botswana, Mozambique, Tanzania, Zambia and Zimbabwe, and said it will use the company as a springboard for further acquisitions.

Diamond last month hired former Barclays colleague John Vitalo as Atlas Mara’s CEO. Vitalo had been head of the London-based bank’s operations in the Middle East and North Africa since 2009.

To contact the reporter on this story: Ambereen Choudhury in London at achoudhury@bloomberg.net

To contact the editors responsible for this story: Edward Evans at eevans3@bloomberg.net

Common mistakes made by private equity firms in Africa

In recent years, private equity in Africa has started to gain momentum and interest from investors.
Rory Ord
Rory Ord, head of RisCura Fundamentals
There are almost 300 private equity managers in Africa, according to Rory Ord, a private equity valuation specialist and head of South African-based RisCura Fundamentals.
“Probably the biggest misconception is that there is not much happening in private equity in Africa, and I think there is a lot more happening than people think,” he told How we made it in Africa.
However, private equity is still relatively young in the unique and challenging markets of Africa. While the potential exists for private equity managers to make solid returns on African companies, so does the potential to make mistakes.
According to Ord, there are loosely two groups of private equity managers in Africa: those who are homegrown, and those who have come from a private equity background in the US or Europe. “And I think that the two groups actually make different mistakes that we can see from our point of view,” highlighted Ord.
Western fund managers need to think about Africa differently
For the group of private equity managers coming from outside Africa, Ord explained that the biggest mistake they can make is to try and implement the Western model of private equity directly into Africa.
“In most cases it does not really work,” he said. “From a structuring point of view it certainly doesn’t work because there isn’t as much access to debt funding in Africa as there is in the developed world.”
Another mistake Ord said his firm has seen these fund managers make is the assumption that certain structures, such as logistics networks and supporting services, are already in place to help their target company grow. For many African companies, the lack of adequate infrastructure in their market raises the cost of operation and is a major limitation on their growth.
“It’s extremely important for investors to make sure that what they assume is in place is actually in place otherwise they can actually have to incur a lot more costs than they expect in that particular deal,” emphasised Ord.
Homegrown fund managers need more experience
While the homegrown private equity managers might know their markets very well, Ord explained that they often lack the skill and experience of developed market fund managers. This is because private equity on the African continent is generally new and many of the local managers might have come from a corporate finance or banking background.
“So some of the structuring of deals is quite simple and perhaps could be done in better ways,” he continued. “It is always difficult in Africa because of a lack of a long track record of private equity. So company management is not really used to being approached by private equity for investment in their companies and they are not really sure how to handle it. So often deal structuring has to be quite straight forward just to get a deal done whereas in developed markets or even in South Africa you may be able to do a better deal structure that is going to give better result for investors.”
Western model questioned
The 2/20 model of private equity, which refers to the 2% management fee and 20% outperformance fee, is common in developed markets. However, Ord explained that there has been some pushback around that model in Africa as investors want to see some more justification as to why it is the right model for the continent.
“And the private equity model in general gets questioned a lot in Africa because it is not something that people have dealt with for the last 20 years. A lot of the time it is new to investors on the continent so a lot of thinking has to be done around just the way that fund is presented to investors for investors.”
Advice to foreign investors
“I think if I was a foreign investor I would want to invest with managers who know their markets very well,” said Ord. “It would be quite difficult for me to see why I would invest with a manager who is not based in their target market, who doesn’t have a local network in their target market… because I think it brings additional risk if the manager is not actually seeing day to day what is happening on the ground in their particular market.”
He added that fund managers based in their target African markets are better equipped to identify challenges and opportunities earlier on.
“The most successful fund managers that we see have a strategy right from the start of being very involved in the company that they invest in. So the fund managers must actually have a plan to work with the companies to help take them forward, to put in good governance practices, to put in good financial reporting. Those are actually some of the basics that are often missing in the target companies throughout Africa.”
He added that another strategy he has seen work in Africa is fund managers bringing in experts in particular industries, generally from other parts of the developing world.

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The Carlyle Group and Investec Asset Management invest in J&J Africa, a pan-African logistics company

Working with Management, Carlyle and Investec will foster regional growth by building on J&J's current services and adding new products

BEIRA, Mozambique--(BUSINESS WIRE)--January 23, 2014--
Global alternative asset manager The Carlyle Group (NASDAQ: CG) and Investec Asset Management, a global investment manager with African roots, today announced that they have agreed to invest in J&J Africa, a pan-African logistics company specialising in the road transportation of general cargo along the Beira corridor, one of Southern Africa's key trade routes. Financial terms were not disclosed. The transaction is expected to close in the first quarter of 2014.

Marlon Chigwende, Managing Director and Co-Head of the Carlyle Sub-Saharan Africa Fund, said: "Carlyle brings strong expertise working with companies in the transportation sector, along with deep experience in emerging markets, including Africa. We have a particularly strong track record in partnering with private, family and entrepreneurial firms and helping them expand to compete on a world stage. By building on J&J's current service, as well as adding new offerings, we hope to better serve current and future customers in this fast-growing region. Further, J&J is well positioned to benefit from the fast growth across Southern Africa, particularly in Mozambique and Zambia."

William Alexander, an Investment Principal in Investec Asset Management's Private Equity team, commented: "Over the past decade, J&J Africa has built up the pre-eminent transport fleet and logistics infrastructure in the region. We look forward to working with J&J's highly professional management team to realise our plans to grow the business further in the coming years."

Founded in 1995, J&J has more than 18 years' experience in cross-border transport within Africa. From their headquarters in Mozambique, the company has established itself as a reliable and efficient provider of transport and logistics services to a diversified, international customer base. With 800 trucks and extensive storage infrastructure, J&J is well-placed to serve Southern Africa, home to some of the fastest growing economies in the world.

The investment, which was led by Carlyle, is the second investment by Carlyle's Sub-Saharan Africa Fund, which invests in companies that support the emerging middle class across the Sub-Saharan Africa region. In November 2012, the Fund made its first investment in Export Trading Group, a global agricultural supply chain manager based in Tanzania. The investment is the seventh by Investec Asset Management's Africa Frontier Private Equity Fund, which invests in established companies in Africa with the objective of supporting the creation of local or regional champions in their respective industries.

About J&J Africa

J&J is a transporter and logistics provider specializing in reliable and efficient international transportation along the Beira Corridor. J&J also offers state of the art warehouse facilities for the handling of bulk and container cargo. J&J is able to provide high quality logistics solutions on the Beira corridor. Through experience, development and innovation J&J strives to deliver a superior service for its clients' needs, which include storage, transportation and the handling of bulk, containerised, project and out of gauge cargo. For more information visit: www.jjafrica.com

About The Carlyle Group

The Carlyle Group (NASDAQ: CG) is a global alternative asset manager with $185 billion of assets under management across 122 funds and 81 fund of funds vehicles as of September 30, 2013. Carlyle's purpose is to invest wisely and create value on behalf of its investors, many of whom are public pensions. Carlyle invests across four segments -- Corporate Private Equity, Real Assets, Global Market Strategies and Global Solutions -- in Africa, Asia, Australia, Europe, the Middle East, North America and South America. Carlyle has expertise in various industries, including: aerospace, defense & government services, consumer & retail, energy, financial services, healthcare, industrial, technology & business services, telecommunications & media and transportation. The Carlyle Group employs more than 1,400 people in 34 offices across six continents.

Web: www.carlyle.com

Videos: www.youtube.com/onecarlyle

Tweets: www.twitter.com/onecarlyle

Podcasts: www.carlyle.com/about-carlyle/market-commentary

About the Carlyle Sub-Sahara Africa (SSA) Team

Established in March 2012, the Carlyle SSA team makes buyout and growth capital investments in private and public companies from offices in Johannesburg, SA and Lagos, Nigeria. The Carlyle SSA team focuses on transactions where it has a distinctive competitive advantage and can create tangible value for companies in which it invests, through industry specialization, deployment of human capital and access to Carlyle's global network. Carlyle's target industries include consumer goods, logistics, financial services, agribusiness, and energy, and the African-based team has experience of working in 29 African countries.

About Investec Asset Management

Investec Asset Management, an independently managed subsidiary of Investec Group, is a specialist investment manager providing a premier range of investment products to institutional and individual investors. Established in 1991, the firm has been built from start-up into an international business managing approximately GBP69.8bn on behalf of third party clients. The business has grown organically from domestic roots in Southern Africa to a position where we serve a growing international client base from the Americas, the UK, Continental Europe, Asia, the Middle East, Australia and Africa. Africa remains of critical importance to us, not only due to its enormous potential, but because it is our home market. We are uniquely positioned to offer investors access to a broad range of strategies -- from public equity through to credit, sovereign debt and private equity.

About the Investec Asset Management Africa Private Equity Team

Investec Asset Management has over $40 billion invested in Africa across all asset classes. The Investec Africa Frontier Private Equity Fund focuses on growth capital and buyout investments in established mid-market companies in Africa, with the objective of supporting the creation of local or regional champions in their respective industries.


    CONTACT: The Carlyle Group
Catherine Armstrong

+44 20 7894 1632

Catherine.Armstrong@carlyle.com

or

Investec Asset Management

Kotie Basson (Africa)

+27 21 416 1812

Kotie.Basson@investecmail.com

or

Vian Sharif (Global ex Africa)

+44 207 597 1834

vian.sharif@investecmail.com


    SOURCE: The Carlyle Group
Copyright Business Wire 2014

IMF Christine Lagarde sub-Saharan Africa to watch slowdown in emerging markets

Sub-Saharan Africa is tipped to record growth in coming years with the International Monetary Fund (IMF) forecasting close to 6% growth in 2014. However, IMF managing director Christine Lagarde has warned that slowing emerging market growth is a concern for the region’s future.

Speaking to business leaders in Nairobi, Kenya, the IMF boss noted that the expected volatility in emerging markets present risks for sub-Saharan Africa countries that are more financially integrated with the global economy, such as Kenya.
“Emerging market economies have for many years been the engine for growth. That is slowing down a bit,” said Lagarde. “[This is] important for Kenya and Africa in general because the relationship and the spillover from what is happening in the emerging markets is going to affect or hit the African countries that have strong ties to emerging markets.”
Sub-Saharan Africa is the second fastest growing region in the world after developing Southeast Asian countries and has maintained an average growth of 5% in the last decade.
According to Lagarde, spillover effects of capital outflow in emerging markets will affect sub-Saharan Africa countries that supply commodities in significant quantities.
“Actually when you look at the last five years, it is fascinating to see how the strong growth of emerging market economies have actually sheltered and put a shield on some of the African countries and have protected them in a certain way. So any change in the emerging markets is bound to be a matter of concern.”
Lagarde said that while the region’s outlook is encouraging it “is not without risk”, noting that “policy makers as a result must remain extremely vigilant” to threats from slow demand in emerging market economies.
“Looking forward… sub-Saharan Africa cannot afford complacency because immense challenges remain.”
The IMF boss said growth in sub-Saharan Africa in the last decade, particularly in East Africa, has contributed to higher living standards and poverty eradication. However, poverty in the region and across Africa “remains at unacceptably high levels”.
“Africa can and must grow faster and better in order to address pressing social problems, provide jobs for its young and growing population.”
Lagarde said indicators show progress and clear recovery globally, led by the US. She added that Japan is “heading in the right direction while Europe is slowly emerging from deep recession” but still has a lot to do in terms of structural reforms.
“Major progress has been made but we are not out of the woods. The global recovery that is underway remains uneven and subdued.”

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Sub-Saharan stocks to rise in 2014

A two-year rally in frontier African stocks, which has withstood the Nairobi shopping mall attack, violence in the Central African Republic and fighting in South Sudan, is showing signs of fatigue, pointing to muted gains this year.

The MSCI Africa index, which excludes South Africa but includes three North African markets, has risen more than 60 percent over the past two years as investors sought plays on the rising purchasing power of middle class consumers in the world’s fastest-growing continent.

But inflows into sub-Saharan African equity funds have slowed from more than $3 billion in 2012 to $1 billion last year, according to Boston-based fund tracker EPFR.

With stock valuations in frontier markets now higher than their emerging market peers, investors will need to look beyond blue-chip companies in major markets like Kenya to smaller companies or less familiar markets like Botswana to find value this year.

“I do not think we are going to see a correction, but I do not think we are going to see the same kind of rally,” said Ronak Gadhia, equity analyst at frontier markets broker Exotix, who focuses on sub-Saharan African financial stocks.

The MSCI Africa index rose 18 percent last year after a 38 percent leap in 2012.

Some of the best performers have been in Nigeria, with GT Bank surging 90 percent over the past two years while Nestle Nigeria has nearly tripled.

Nigeria is still probably the most attractive major frontier market in the region but its outlook is clouded by political risk this year, analysts say.

Economist Jim O’Neill, who coined the acronym BRIC (Brazil, Russia, India, China), has included Nigeria in a category of most promising economies: the MINTs – Mexico, Indonesia, Nigeria and Turkey.

Nigeria’s weighting in the MSCI frontiers index should increase to 20 percent from 14 percent following an upgrade of the United Arab Emirates and Qatar in May, ensuring it attracts more attention from both dedicated emerging market and larger global investors.

Investors point to the fact that there are fewer than 30 million bank accounts for Nigeria’s 160 million population, and that Africans are starting to consume more, rather than just acting as exporters of raw materials.

But they also stress the drawbacks of inadequate infrastructure in Nigeria, particularly in the power sector, along with concerns about the impact on the economy of presidential elections next year, and a change in central bank governor this year.

Nigeria is sub-Saharan Africa’s largest market after South Africa, which is an emerging, not a frontier, market.

But with daily turnover on the Lagos stock market less than $30 million, its appeal to large international investors is limited. That is even more true of Kenya, Mauritius or other African markets.

“Some of these markets did very well last year. They may go more slowly or take a break,” said Sven Richter, head of frontier markets at Renaissance Asset Managers.

“I am not predicting they will go down – they should rise at a slower rate.”

SLENDER YIELDS

Investors have not been deterred by violence in African markets, notably the attack on a Nairobi shopping mall in September which killed 67 and in Nigeria where thousands have died since the Islamist group Boko Haram launched an uprising against the state in 2009.

The continent has also been less-sensitive than other high-yielding markets to the prospect of the U.S. Federal Reserve reducing its stimulus programme from this month, although that will still be a risk.

“It’s more about the growth story locally,” said Razia Khan, head of Africa research at Standard Chartered.

“The Africa growth story is consistent, the impact will still be positive.”

The International Monetary Fund forecasts economic growth in sub-Saharan Africa will accelerate to 6 percent this year, from an estimated 5 percent in 2013.

But some of last year’s outperforming stocks may find the going tougher.

Kenyan power generation company Kengen soared more than 50 percent in 2013, but further gains may be hobbled by huge capital raising to finance new generation plans.

Nigerian banking profitability could be at risk from more punitive reserve requirements.

Local funds, however, have helped boost share prices in recent months as they switched from fixed income markets which have lost some of their yield appeal.

Nigeria’s pension assets have more than doubled in the last eight years, to $24 billion.

“The allocation to equities is increasing, moving from 10-11 percent to 13-14 percent, and we see that increasing even further,” said David Mcilroy, chief investment officer of Africa fund Alquity.

And for those funds small and nimble enough to move into the tinier African markets, there could be other options.

Analyst picks include Botswana microfinance company Letshego , Mauritius’ second bank Mauritius Commercial Bank and Rwanda’s Bank of Kigali.

Richter said investors would gradually become more adventurous in stock-picking, moving away from international names and towards buoyant local businesses.

“They first get their toes into the market, then look at other opportunities.”

Investing at the dawn of the African century

“Why invest in Africa when “the risk is so high?”  - I would have thought the answer was so obvious as to make the question irrelevant, but that doesn’t change the fact that we get asked this on a regular basis — by international investors and African journalists alike. The question is generally followed by one version or another of our continent’s perceived woes: poverty, under-developed institutions and conflict…

As we see it at Citadel Capital, it comes down to this: If you are satisfied with a one per cent return on your investment, go buy 10-year Swiss bonds. Otherwise, go to Africa, because our continent today stands on the cusp of a major boom. We see Africa as the last great frontier in investing.

Across the continent, there are billions of dollars a year in infrastructure investments seeking funding — and an abundance of natural resources that will be the nucleus of an industrial base across the continent. Crucially,  a new generation of policymakers has opened power generation, energy distribution, refining and large transportation projects to the private sector. A global commodities boom has fuelled exports. Africa now holds 61 per cent of the world’s total uncultivated land, a reality to which African policymakers and global buyers alike are waking up to. What’s more, we have an incredible potential demographic dividend: One billion consumers today and, by 2040, the world’s largest working-age population.

As a result, we think we’ll see a four-factor growth story here in Africa: Export-led growth, the power of the African consumer base, the impact of optimally developing natural resources, and the development of infrastructure to support all of this. That’s why we’ve seen an average of six per cent GDP growth across Africa in the last decade and it is why the World Economic Forum is estimating that Sub-Saharan Africa will see GDP grow by 35.7 per cent by 2017 to USD 1.9 trillion.

Harnessing these opportunities demands a willingness to delve deeper, to be hands-on with your investments, to get to know the countries and the industries in which you invest. But whether you’re building critical infrastructure, manufacturing for domestic consumption or making value-added exports, Africa, as we see it, is the last great frontier in investing and perhaps in no sector is that reality clearer than in the transportation industry.

Looking at East Africa, the region has some of the highest consumer prices in the world, particularly outside major urban centers, due in large part to the high cost of transportation on poorly maintained and fragmented road networks. To take the extreme example, South Sudan has among the highest food prices in the world. Maize at the retail level is sold at US$ 10 per kilogram, and a three-liter bottle of cooking oil costs US$ 16. In fact, a tonne of maize costs more than triple the international price.

The pinch may not be felt as sharply in Kenya and Uganda, but there is no doubt that citizens have suffered as a result of decades of underinvestment in rail infrastructure. That’s where the Citadel Capital-led consortium that acquired Rift Valley Railways comes in.

Our turnaround of RVR is based on four pillars and serves, we think, as a proven methodology for unlocking value in the transport sector: a clear strategy; the provision of adequate financing; the deployment of global cutting edge technology; and the supervision of all of this by globally-qualified experts who understand how to do business in Africa.

The first four years of the concession, from 2006 until 2010, were effectively wasted before the original franchisee was replaced by an amended covenant signed by new investors — Citadel Capital, Kenya’s TransCentury and Uganda’s BOMI Holdings — in late 2010.

RVR initially thought it needed USD25 million in investment under the first concession and USD40 million in the second. But after a detailed inspection of the 2,300-km of track and other assets, we found that even the USD 40 million investment threshold was an underestimation by a factor of seven.

That’s why we worked with our partners between August 2010 and September 2011 to line up full funding for a USD 287 million (Sh24.7billion) turnaround. This is an amount we felt was necessary to bring the railway system back up to speed after three decades of neglect. Noteworthy investment to revive the railway only began in December 2011, after the first draw-down. To date, almost two years to the day later, USD 156 million (Sh13.5bn) has been injected into turning around the railway system.

This is a scale of private-sector investment unmatched over the same period in East Africa and exceeds by 700 per cent the investment target in the agreement. Indeed, we’ve invested more in the rail system in the past 18 months than was invested in the previous 18 years.

This investment has been overseen by a world-class operating team at RVR made up of Kenyans, Ugandans and international experts from America Latina Logistica (ALL), the global specialist in emerging-markets rail based in Brazil.

Under new management, RVR has introduced a GPS-based automated train warranting system that makes RVR by far the most technologically sophisticated rail operation on the continent. We have relaunched the Tororo-Gulu-Pakwach line in Uganda for the first time in 20 years, opening the door to new economic opportunity in Northern Uganda and setting the stage for growth in regional trade. We have rehabilitated over 900 wagons and are now purchasing 20 new state-of-the-art locomotives. We’ve completely rebuilt 73 kilometers of new rail between Mombasa and Nairobi, and continue our aggressive program of reconditioning existing rolling stock and locomotives at workshops in Kenya and Uganda.

Crucially, we’re also investing in people too: Part and parcel of the turnaround program is over USD 10 million of training and capacity-development programs, structured with ALL (the largest private sector railway operator in Latin America) to bring best-in-class railway operations know-how to RVR’s engineers and technicians. And the market has noticed: When we launched our first Management Trainee Development Program in the top universities across East Africa, over 3,000 qualified young engineers and economists applied to be a part of the new RVR.

Already, we’re seeing the payoff: In October alone, incidents and accidents are down over 47%, due to our investments in track; volumes are up 30%, due to investments in rehabilitating locomotives and wagons; and trip times are breaking historical records due to investments in technology-based operating systems.

As we continue delivering at RVR — and as we look for government action to ease customs procedures that drag-out crossing times between Kenya and Uganda — we are meanwhile focused on delivering value at our other transportation assets, all with a view to linking global ports to inland markets. Nile Logistics, our river-transport investment in Egypt, is poised to grow as fuel subsidies that have made road transport artificially cheaper are lifted. In Sudan and South Sudan, our two river transport operations are capturing new business.

The journey will not be short. We know that. But taken in the context of the African Century, it is one we feel we have no choice but to take.

The author is Managing Director at Citadel Capital, the leading investment company in Africa with US$ 9.5 billion in investments under control, where he has primary responsibility for the company’s investments in the transport sector.
BY KARIM SADEK
- See more at: http://www.the-star.co.ke/news/article-149344/investing-dawn-african-century#sthash.t9beh3m5.dpuf

African private equity industry has optimistic outlook in 2014

By Nicel Jane Avellana

Pretoria, South Africa

Except for South Africa, the private equity industry of the African continent is said to be relatively young and has its fair share of weaknesses. However, activity in private equity hotspots in Africa's western, eastern and southern parts has increased because of political stability, growth of infrastructure and growing consumerism, the Financial Times reported. This has given rise to a more optimistic outlook for the industry in 2014, the report said.
The report also stated that private equity was able to earn some solid returns for its investors last year. The private equity division of KPMG revealed that for 2013, the funds closed or are closing for Africa reached up to R160 billion or $15 billion. About R40 billion of this could be used in South Africa, the report added. This compared with the R15.4 billion gathered by South African funds in 2007. The report said the deployment of capital secured by private equity fund managers in South Africa is set to grow by the new year.
Early in 2013, the Ethos Fund VI closed with R8 billion, the report said. This was followed by Capitalworks, which announced that it had raised a total of R2.7 billion for its second fund. For its ICT infrastructure fund, Convergence Partners first closed with nearly R1.5 billion and is looking at raising R2.5 billion for its final close. Metier also said recently that it was able to gather R690 million for its Lereko Metier Sustainable Capital Fund.
South African Venture Capital and Private Equity Association or SAVCA Chief Executive Officer Erika van der Merwe told FT, "The industry is now in a strong position to provide equity funding for expansion and growth, across a range of sectors and regions."
In East Africa, increasing investment has also fueled the development of the sector. Deloitte's 2013 East Africa Private Equity Confidence Survey revealed that private equity funds have poured $475 million in Eastern Africa in 2012, representing a substantial increase from the year before, the report said.

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