The Fund’s Technical Assistance Facility (ALCBF TAF) was established to provide a pool of resources to ensure bankable deals come to market and appropriate incentives are in place for issuers, investors and intermediaries
Deal-specific services that might be funded by the TAF include legal support, financial advice and credit ratings for new issuers. TAF funds may also cover specific transactions costs such as regulatory filings bond roadshows. By defraying such upfront costs, the ALCBF TAF is trying to make accessing local currency bond markets easier and less costly.
The TAF will also help issuers to improve their financial management capacity, reporting and governance in preparation for an issuance. This will enhance the capability of financial institutions and companies to access the market on an ongoing and sustainable basis.
Examples of TAF Support
The ALCB Fund supports the SMART Campaign for responsible lending. Becoming Smart Certified demonstrates that a financial institution puts the seven “Client Protection Principles” (CPPs) into practice and helps regulators, investors and donors distinguish financial institutions that put clients first.
Once certified, an institution is recognised for implementing adequate standards of care and is on track to being an internationally recognised industry leader. Certified institutions can advertise themselves as certified and will be listed on the Smart Campaign website. In March 2015, Bayport Botswana became the first African organisation to receive SMART certification.
The ALCBF TAF has established a tailored process for approving Smart Certification. This can take place within a defined period after the Fund has invested in the bond. Smart Certification providers active in the Fund’s target markets are encouraged to contact the Fund Manager for more information.
A characteristic of African local currency bond markets is a lack of detailed credit analysis. Bond buyers are focused largely on name recognition while placement agents may not properly market the issuers’ credit story to investors (rather, they see their role as merely connecting issuers with investors).
Credit ratings can assist local stakeholders to instil a “credit culture” in the market. A transaction that is accompanied by a ratings report has undergone a thorough credit review, including benchmarking against comparators. Rating reports are widely disseminated in the market among different counterparties. Rating reports are designed to assist investors to understand new and innovative structures and unfamiliar sectors.
The ALCBF TAF has established a tailored process for approving credit ratings. This is designed to ensure ratings agencies are mobilised and assignments executed in a timely manner, matching the bond issuance timetable. Credit rating agencies active in the Fund’s target markets are encouraged to contact the Fund Manager for more information
The ALCBF TAF is governed by a TAF Committee which is responsible approving disbursements and overseeing assignments. The TAF Manager, LHGP Asset Management, is responsible for originating TA assignments to the TAF, presenting proposals to the TAFC and monitoring implementation on its behalf.
In order to ensure transparency, integrity and quality, the ALCBF TAF has approved established guidelines with standardised procurement, evaluation and contracting procedures. Specific procedures are in place for pre-approved technical assistance activities, such as SMART Certification and credit ratings.