Faisal Khan has joined Acre Impact Capital, which is using an innovative export financing model to finance climate-related infrastructure in emerging markets by partnering with export credit agencies and commercial banks.
Export finance is increasingly seen as a mechanism to move money from the global north to the south to help meet the UN’s Sustainable Development Goals and close a funding gap that is estimated at US$3.7trn by the UN Conference on Trade and Development.
Khan joined Acre as CIO and founding partner in January after previously heading Middle East DCM at BNP Paribas and working in the bank’s sustainable capital markets team. He joins founding partner Hussein Sefian, who set up Acre in 2018 and was formerly head of strategy and strategic investments at BNPP CIB.
Acre claims to be the first private debt asset manager to focus on the commercial tranche of export finance transactions. Acre’s export financing funds will target African climate infrastructure projects in renewable power, health, food and water scarcity, sustainable cities and low-income housing and green transport.
"There is no other fund that we know of that is focused on export credit transactions," Khan said.
The African Development Bank estimates that there is a US$100bn funding gap for infrastructure on the continent.
Financing gap
ECAs provide guarantees on infrastructure projects in frontier and emerging markets to reduce the costs and risks of financing projects. ECAs typically provide guarantees for 85% of projects and the remaining 15% is borrowed by governments on commercial terms.
Banks previously arranged ECA deals on balance sheet, but changes since the global financial crisis have increased the cost of capital and lenders are now often unwilling to finance the 15% due to its balance sheet impact.
Banks also have relatively small exposure limits for emerging market countries and risk insurance is also limited, which is also affecting the viability of projects.
"What we find is a lot of good bankable deals actually struggle to get done because the 15% commercial downpayment tranche is unavailable. What Acre is doing is coming in and financing that 15% balance, thereby unlocking the remaining financing," Khan said.
Acre is aiming to provide the 15% commercial loan tranche on commercial terms that yield 150bp–300bp over the relevant sovereign bond curve or similar credit risk. It is an open platform and is aiming to work with all OECD ECAs.
As well as mobilising more capital, the export loans also make projects more affordable for emerging markets countries.
"The blended cost of capital is lower and the saving can be 15%–20% overall, so it’s a much more affordable product that will let countries deploy savings in other areas," Khan said.
The fund is seeing demand from African countries for healthcare and water projects for agriculture as well as renewable energy for electrification.
Acre was established with support from The Rockefeller Foundation’s innovative financing programme and the Private Infrastructure Development Group, a multilateral development organisation owned by five European governments.