Monday, January 20, 2020 / 08:00 AM / Brickstone / Header Image Credit: Brickstone
The currently seeks investments from global pensions and commercial financiers to help fund the continent's infrastructure gap of as much as . This infrastructure need presents an investment opportunity, especially for Infrapreneurs. Infrapreneurs, as used in the context of this article, refers to Entrepreneurs or business owners who are typically in corporate businesses but desirous of developing Large-Scale projects such as Toll Roads, Power Plants, Renewable Energy, Gas Plants, Airports, Large Scale Real Estate Projects, and so on.
While the government should provide an enabling environment for infrastructure to happen, the Private Sector should equally play a leading role in major infrastructural developments. For Infrapreneurs to overcome the obstacles often associated with project delivery process, it is necessary to develop a string of "Infrastructure Finance" capabilities, in order to attract capital from investors. Our survey at Brickstone reveals that 80% of entrepreneurs who show interest in the development of Infrastructure do not currently have the knowledge and capacity to develop and execute these projects. Our research further reveals that though most Entrepreneurs have the inabilities to demonstrate in-depth knowledge of their Large-Scale projects to Institutional Investors, they often find it difficult to secure (in the bag) the right equity funding needed to attract the necessary fund required for the project.
The inability to demonstrate the much-needed knowledge as well as the seemly gap in the quality of the knowledge of Large-Scale Projects by most entrepreneurs has been the obstacle standing in the face of such Entrepreneurs securing the required funding for projects from (African) investors. Our research equally shows that most Infrapreneurs have challenges making progress with their projects because of the limitation imposed by the paucity in knowledge and capacity building in financing projects centering on Infrastructure development. Consequently, the African Infrastructure private sector has also not been able to take its rightful place in project development and delivery.
Understanding the need for knowledge exchange in Infrastructure Finance, Brickstone Africa has set up the Brickstone Dealcamp Series - a training series designed for African Infrapreneurs developing projects but lacking the knowledge of project and corporate finance principles in making deals happen. Under the training series, the team provides intense 2 or 3 Days Programmes, using best practice masterclass finance training tools specifically for Entrepreneurs involved in Large Scale projects in Energy, Infrastructure and Real Estate Sectors. The Project Finance Fundamentals for Infrastructure is one of the courses at the Brickstone Dealcamp Series. The trainings will hold in major African cities, including Abuja, Lagos, Port Harcourt and Accra. The training focusses on the infrastructure financing process over Three (3) Days.
It is important for entrepreneurs to know that Infrastructure financing is a lengthy process that could take up to 1 or 5 years to active the financing close (i.e. raising the required capital which sometimes could be up to over $2 billion on a single project. This is an enormous undertaking by the Infrapreneur as it requires the infraprenuer to drive the project along Four (4) major phases of the project development cycle. a. Early Stage Development, b. Pre-Financing Stage, c. Financing Stage and d. Post Financing Stage.
These Four (4) phases are extensively covered in the Brickstone Project Finance Fundamental teaches Infrapreneurs developing Large-Scale projects.
During the Early Development Stage, there are issues discussed which includes the Origination process of an Infrastructure project. We define an Infrastructure Project as a capital-intensive facility that requires securing a conditional right from a ceding authority pursuant to a tendering process or an unsolicited proposal to build an infrastructure facility under a contracted revenue (either on price or quantity or both). Brickstone stresses that during the early development stage, Infrapreneurs must develop of Realistic Estimate of the Large-Scale project and ensure the revenues are sufficient to cover Capital and Operating expenses and repay project debt with an acceptable margin of safety. The Early development Stage ends where the Infrapreneurs and Ceding Authority agree to proceed on Developing the Project. There are activities that may involve negotiating and formalizing on proceeding on the project development on an exclusive basis with the Infrapreneurs on an agreed Implementation Plan.
The Pre-Financing Stage is lengthiest of the stages and could occur for about 1 to 5 years. This is where most African Projects get stalled and not able to move forward. This stage includes detailing out transaction plan of the project with supporting transaction documentation needed such as Project Agreements, Information Memorandum and a Detailed Financial Model. It is worthy of note that before a lender decides to lend on a project, such a lender must ensure the concerned project is financially and technically feasible by analyzing all the associated factors including the Financial Model and Project Agreements. The experience of the lender also come to bear at the point, as this determines how long the infrastructure financing process would take.
In order for the Financing Stage to happen, the Infrapreneur needs to acquire equity or loan from a financial services organization whose goals are aligned to that of the project. During this step, the borrower and lender negotiate the loan amount and come to a unanimous decision regarding the same.
As the project commences during the Post-Financing Stage, it is imperative to keep track of the cash flow from its operations as these funds will be, then utilised to repay the loan taken to finance the project.
Finally, it is important for Infrapreneurs to note that Project Development is a journey towards achieving bankability. It is usually a long and expensive expedition, which could cost as much as 5% to 10% of the total project cost, while a less knowledgeable entrepreneur would spend a lot more. This important knowledge of how to achieve bankability is what is lacking amongst Africa business executives and Infrapreneurs developing Large projects to fill Africa's Infrastructure gap. It is this very gap that Brickstone Africa has set out to fill through the Brickstone Dealcamp Series