SOUTHERN Africa is set to benefit from a revolving, evergreen vehicle meant to de-risk the balance sheets of development finance institutions operating in Africa, while providing attractive investment returns for private sector participants.
The vehicle, the multi-originator synthetic securitisation transaction (MOSST), was signed by the African Development Bank (AfDB), together with other institutional investors and the Development Bank of Southern Africa (DBSA) and will provide lending for high impact projects on the continent.
MOSST was signed during the three-day 2024 Africa Investment Forum Market Days that was held in Rabat, Morocco, last week. The forum was hosted by AfDB.
MOSST builds on the success of AfDB’s inaugural US$1 billion synthetic securitisation transaction under its “Room to Run Programme” in 2018.
It seeks to transfer a mezzanine tranche credit risk to private sector investors while retaining senior tranche risk within the originators to allow AfDB and DBSA to unlock additional lending capacity. This lending will be used for high-impact development projects and provide regulatory capital relief on a revolving basis.
Signing the agreement on Friday last week, AfDB president Akinwumi Adesina said:
“The proposed multi-issuer securitisation vehicle we are shaping — just like with SDR [special drawing rights] rechannelling through hybrid capital and other innovations we continue to explore — exemplifies how collaboration between multilateral development banks and private sector investors can unlock transformative capital flows to address Africa’s financing gaps.”
He added that this marked a significant step in the bank group’s realisation of its vision embodied by its 10-year strategy 2023-2032.
This strategy places emphasis on private capital mobilisation and derisking as central themes to redress the slow pace of delivery of sustainable development.
It aligns with the goals of other key institutional investors such as Academy Securities, Africa50 and Newmarket which were part of the signing of the letter of intent to explore the establishment of MOSST.
The platform aims to feature a combined reference portfolio of approximately US$1,5 billion to US$2 billion in assets, diversified across sectors, geographies and risk profiles.
It will include loan and guarantee exposures that align with the AfDB’s and DBSA’s shared strategic priorities, particularly in climate finance, infrastructure and financial intermediation.
The composition reflects a more granular and well-diversified pool of assets to appeal to a broad spectrum of investors.
“It is imperative that multilateral development institutions, asset managers and institutional investors work as a system to scale up financing available for Africa’s growth,” DBSA chief executive officer Boitumelo Mosako said.
Newmarket co-founder and managing director Molly Whitehouse said they were proud of their role in the groundbreaking Room2Run transaction and excited about the growing opportunity set in the multilateral development bank sector.
“With the SST Platform, we can extend these successes as we build on our partnership with AfDB and now DBSA,” she said.