Abraaj prepares $800m Africa fund launch

The firm plans to target Asian investors for the first time.

Abraaj Capital expects to finalise its investment mandate for an $800 million sub-Saharan Africa-focused fund in the coming weeks and plans to target a new set of investors, according to Davinder Sikand, partner at The Abraaj Group.

The fund will be the firm’s third vehicle for the region and is more than double the size of its $381 million predecessor.

The fund size reflects Abraaj’s plan to make bigger deals – between $30 to $35 million, compared to around $15 million – because companies have grown so much since 2008 when the second vehicle was launched.

Abraaj last month partnered with Danone to buy 100 percent of Fan Milk International, a Ghana-based dairy company. The firm did not disclose the financial details, but a source close to the matter told Private Equity International the deal was worth over $100 million. 

Sikand, who is based in the firm’s Kenya office, says Abraaj is tapping LPs in Asia for the first time, focusing on both institutional and independent capital. Its previous Africa funds are made up of domestic, European and a few US investors.  

However, Asian LPs remain relatively cautious about Africa and won’t necessarily invest in the country through private equity.

“A Chinese [LP] would still be more comfortable going into Southeast Asia, than Africa. However, the potential of Africa – the resources, oil and gas services – is starting to emerge and we are seeing a number of Chinese companies on the ground now from number of industries,” PEI's industry source said.

However, he adds that despite Africa's opportunities, raising money from Asia could be challenging. “It is unclear right now – there is interest [from Asia] but whether people will actually sign up and cross the finish line is unclear. You’ll get high net worth individuals to do that, but [it isn’t clear] whether the institutions will.”

And some institutional investors have expressed their intention to stay away from private equity.

Korean institutional investors Jeung Jae Ho, chief investment officer at the Korea Federation of Community Credit Cooperatives, and Kim Joong-Il, chief investment officer at the Specific Post Office Service Agency, agreed that fixed income would be the preferable method of accessing investment opportunities.

Jae Ho explained that Korean investors are often looking for a 6 to 7 percent return and will focus on fixed income investment rather than private equity when investing in Africa, speaking on a panel at the AsianInvestor and FinanceAsia Africa Investment Summit 2013 in Hong Kong this week.

“Most Korean institutional companies prefer [to invest] on a mezzanine basis, so we like preferred stock or common stock” he said.

However, some GPs are seeing increasing interest from Asian investors to do co-investments.

Thelma Maclean, senior investment analyst at SAS Finance Group, said at the event, “We see a lot of strategic partnerships with Asian companies. I’d say that is increasing and I think it’s even taking over some of the advanced and more developed countries.”

Sikand, who also spoke on the panel, agreed. “We’ve partnered with a number of Asian families, mainly in the industrial sectors, as they come to set up business operations in the region and they often want a local and institutional partner.”