Invest in infrastructure

TRANSFORMATION: LOCAL FIRM LAUNCHES R3BN DEVELOPMENT FUND

Specialist fund manager Bayakha has R10bn worth of projects ready for execution.

Local fund managers can assist with managing the infrastructure development fund President Cyril Ramaphosa announced, says Ngoku-Sakhile Mazwi of Bayakha Infrastructure Partners, a majority black-owned specialist infrastructure fund manager.

Bayakha has partnered with Eaglestone Advisory to launch a R3-billion Transformational Infrastructure Fund.

Mazwi says local fund managers with infrastructure investment experience could support public-private partnerships. By leveraging private funds, the extent of infrastructure development could be multiplied.

Over 90% of SA retirement savings are invested in public listed companies; the regulatory environment and international trends suggest a higher allocation to private markets would be appropriate. Infrastructure investment could provide the opportunity to better balance portfolios, Mazwi says.

Bayakha has R10 billion worth of projects ready for execution.

Mazwi is passionate about infrastructure investment, as it’s developmental in nature with high community impact.

Such investments – such as in a power station – are defensive, delivering returns whether the economy is buoyant or struggling.

Traditionally, investors have accessed inflation protection via a real return fund – which relies on expensive derivatives – or asset allocation (playing the market and hoping to get it right long-term), Mazwi explains. However, the department of energy offers institutional investors a third option through its Renewable Energy Independent Power Producer Procurement Programme (REIPPP) – an inflation-linked return that’s contractually guaranteed. There’s now also a secondary market; rules favour majority black-owned fund managers like Bayakha, as does the investable universe. In terms of REIPPP rules, equity investors are locked in for three years from the date of commercial operations. Thereafter, investors can sell their equity, with certain conditions. The lock-in period for the first bid round ended in December 2017 and the second ends this December. Projects in these rounds didn’t have great BEE scores, but the power purchase agreements were concluded at high tariffs, providing for risk premiums associated with early investment in an industry new to SA.

Mazwi says Bayakha is eyeing the first three bid rounds for investment. There are lots of opportunities, with senior sponsors selling equity. Bayakha targets wind and photovoltaic projects.

The energy department’s special dispensation for majority black-owned fund managers to be recognised at 100% black ownership further favours a company like Bayakha.

The Bayakha fund targets 60% of its portfolio to be allocated to economic infrastructure, including REIPPP, transport, water infrastructure and information and communication technology. The rest will be invested in social infrastructure, health and education.

Mazwi says Bayakha targets townships for the provision of multidisciplinary private hospitals. It would typically partner with established private healthcare groups on such projects.

The fund aims to generate a minimum target internal rate of return of CPI plus 6%.

The first round of fundraising is open until the end of November. The aim is to raise R1 billion and increase it to R3 billion within two years

Leverage private funds to finance projects.