Africa proves profitable for Cordiant
African fund promotes sustainable growth

Barry Critchley
Financial Post

Friday, March 10, 2006

The juxtaposition was almost eerie: At the same time that a column was being prepared on Banro Corp., a Canadian-based exploration development company active in the gold fields of the Democratic Republic of Congo and a speaker at this year's meeting of the Prospectors and Developers Association of Canada, a call was made to the Montreal offices of Cordiant Capital, a one-of-a-kind money manager that was also a speaker at the same convention.

And it just so happened that Cordiant, which manages three institutional pools of capital geared to the emerging markets, was an investor in Banro. Cordiant, formed in the late 1990s by Carl Otto (chairman) and David Creighton (chief executive), made that investment last October when it anted up $13-million and bought two million shares at $6.50 a share. Banro closed up 10 cents yesterday at $12.60.

Cordiant made that investment in its Canada Investment Fund for Africa (CIFA), understood to be the only one of its kind in Canada and one of the few in the world geared to making investments, mostly of the private-equity kind, in either African companies or companies that are active in Africa but based elsewhere.
The CIFA was launched following the commitment of the government of Canada at the 2002 G8 summit, which was held in Alberta.

Cordiant got to the position of being able to invest in Africa because it was selected by the government of Canada to manage the Canada Investment Fund for Africa. At the 2002 G8 summit, the federal government -- then led by Jean Chretien -- made a commitment to Africa: It would help set up a fund, would provide the initial $100-million commitment but would be fully on board once the private sector also chipped in.

For that to happen, the government had to select a manager, so after a long and detailed search, Cordiant emerged as the winner. (That decision was announced in May, 2004.)

Creighton, a former BMO Nesbitt Burns staffer who returned to Canada in the late 1990s, said the fund was designed to provide risk capital to commercially successful private-sector businesses in Africa. "And what's more, the fund is aimed at promoting sustainable economic growth and social development on the African continent."

So far the CIFA has had two closings, with the third and final one scheduled for middle of the year. By then the fund should be home to US$200-million of assets, which have been contributed by eight institutional investors. Sad to say, Canadian investors have been reluctant to come forward. But if things work out as planned, the federal government will end up being a 40% partner, with the private sector having a 60% stake.

In turn, Cordiant lined up United Kingdom-based Actis Capital, a private-equity firm that invests in emerging markets. The firm, which resulted from the management buyout from CDC Group PLC, has 16 offices in Asia, Africa and Latin America and oversees the management of US$3-billion of client assets.

The fund was officially launched last October in Ghana, with former prime minister Joe Clark one of the official guests. The two managers have been busy in selecting investments in Africa.

So far the two have made eight investments for a total outlay of US$28-million. The list of investments includes a stake in Nigeria's UAC, the former Unilever operation in that country; a stake in Banque Commerciale de Rwanda; an interest in Orezone, a Canadian-based gold explorer and producer operating in Burkina Faso, and an interest in Mr. Big's Fast Foods, the largest fast-food chain in Nigeria. It has also invested in the management buyout of Peters Papers, a South Africa-based paper merchant.

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Cordiant became best known as the world's first money manager set up to invest in loans made from international agencies to private-sector companies operating in the developing world.

So far Cordiant -- owned by the Ontario Teachers' Pension Plan Board, SNC Lavalin Capital and its directors -- has raised two funds.

In 2001, it raised US$360-million for its first fund, the International Finance Participation Trust, a vehicle that offered Canadian pension and endowment funds access to a floating-rate return through project finance loans in emerging markets that enjoy the World Bank's preferred creditor status.

In October, 2005, Cordiant followed up with a US$275 million financing for its second fund, IFPT 11. That fund is a clone of the first.

Creighton said all of the loans that have been made are in good standing. "We have never had a problem," he said, noting that in 2004, the loans generated a return of LIBOR (London inter-bank offer rate) plus 348 basis points.

On its own and through its links with Actis, Cordiant has made more than 80 investments in 30 countries.

© National Post 2006

CREDIT: Derrick Ceyrac, AFP, Getty Images
Lagos harbour in Nigeria: Cordiant was selected by the government of Canada to manage the Canada Investment Fund for Africa.