"We have completed transactions in Africa and have discerned how to overcome the traditional difficulties of raising money on the continent," says Derrick Hyde, director at Jaltech.
"Typical problems of financing projects in Africa include perceived small pools of capital in African states. Traditionally the bulk of finance is raised outside the country. In the Usutu transaction, only 20% of the finance was raised outside of Swaziland (in South Africa). The Industrial Development Corporation of South Africa and Swaziland financial institutions invested in this transaction.
"We managed to raise 80% in Swaziland. When you raise money locally, it has the benefit of cheaper cost of capital as investors across borders tend to charge for sovereign risk which makes financing more expensive," Hyde explains.
"In Africa local institutional investors are generally limited regarding the number of transactions that they can do outside of their country, and are constantly looking for investable local opportunities which are in short supply. In this case, Montigny involved the Public Service Pensions Fund and Swaziland National Provident Fund as new shareholders. Large, local institutional investors mitigate against perceived political risk. As you can imagine, with these partners, the investment by Swazis is now broad based, and aligns with government interests and mandates."
"Many African countries do not have sovereign debt ratings and it is difficult to quantify and price the associated risks. There is also often a perception that Africa is not investor friendly or that the hurdles outweigh the benefits. Often the political dynamics and realities within these countries are misunderstood or misinterpreted," he continues.
"Jaltech has shown that this is not the case and that, with the right networks, knowledge and approach there is substantial upside for investors. Furthermore, we now structure political risk insurance into our deals so that should a political event such as nationalisation without compensation happen, insurance would pay out to investors."
After the catastrophic forest fires in 2008, Sappi Usutu closed down its pulping operation in Swaziland, and re-invested substantially into returning the plantations to sustainable, commercial plantations. Montigny, an entrepreneur run forestry business based in Swaziland, was the single largest customer.
Montigny approached Sappi to purchase Usutu, and return one of the largest man-made forests in the world into a positive contributor to the Swaziland economy. The deal was complex and required intimate knowledge of doing business in Africa.
In June last year Jaltech was appointed by Montigny to advise on the transaction, structure and raise the R100m of working capital and the R1bn finance for the deal. The transaction is particularly significant for the Swazi economy as it will see the creation of about 3,000 jobs as Montigny Investments develops Usutu into the largest integrated timber milling and processing site in Southern Africa. Swaziland has a 41% rate of unemployment. Usutu has been foreign owned for more than 60 years and this transaction sees it finally 100% Swazi owned again.
