Off-grid solar energy provider Sun King, formerly known as Greenlight Planet, has raised US$130m-equivalent in Kenyan shillings by securitising future payments of its pay-as-you-go customers in a transaction it says will pave the way for similar financing activity in Africa. The first securitisation of African off-grid solar contracts was completed in late 2015 and there have been several innovative transactions in recent years.
Citigroup was arranger, primary placement agent and sustainability structuring bank for Sun King's securitisation, which was the first transaction of its kind to be arranged by a bank – rather than bilaterally. It was also the first to see development finance institutions and commercial banks investing alongside each other and the first to have a sustainable financing framework and second-party opinion in place.
The deal attracted the participation of commercial lenders as well as development finance institutions, including Absa Kenya, British International Investment, FMO, Norfund, Stanbic Bank Kenya, the Trade and Development Bank and Citigroup itself. The deal was originated by Citigroup's social finance division and delivered in conjunction with its financing and securitisations team. Standard Bank was co-placement agent.
“The idea here is that you bring to the table private sector investors as well, not only DFIs but also commercial players that are seeking market returns as well as social and environmental impact," said Jorge Rubio, global head of social finance at Citigroup. "The public sector alone will not be able to fill this gap.”
The transaction is backed by the payments from more than a million existing and future Sun King customers in Kenya who purchase solar systems, smartphones and electrical appliances in instalments, which can be as little as US$0.15 per day. Solar power is not only a more environmentally friendly alternative to kerosene and gas but also more affordable, though the up-front costs prevent many consumers from switching, according to Sun King.
The securitisation comes with a sustainable financing framework, which Moody's rated as very good, its second-highest score. The framework is based on the green and social benefits of solar systems and appliances and the social benefits of smartphones.
Sunny intervals
The first securitisation of African off-grid solar assets was claimed by UK firm Bboxx in late 2015 with Bboxx Dears Kenya, a US$500,000-equivalent transaction with Dutch social investor Oikocredit International.
More recently, in 2020, Credit Agricole and Societe Generale arranged a securitisation denominated in CFA francs to finance off-grid home solar kits in Ivory Coast for Zola EDF Cote d'Ivoire, a joint venture between EDF and Zola Electric, while Solar Frontier Capital, a subsidiary of African Frontier Capital, set up a vehicle called Brighter Life Kenya 1 to purchase and securitise Kenyan off-grid solar receivables originated by d.light design with the US International Development Finance Corp as senior lender.
As off-grid solar securitisation has evolved, transaction sizes have generally increased and new structures have been developed. In 2021, Solar Frontier brought Norfund into Brighter Life Kenya 1 as a senior investor alongside the DFC and doubled the maximum size of the transaction to US$127m. A year later, the same sponsor announced the establishment of a US$238m multi-currency vehicle called Brighter Life Kenya 2 with senior funding from the DFC, Norfund, responsAbility and Oikocredit. The BLK 2 transaction has a two-year commitment period and fits the company's plans to expand into other countries.
Innovation welcomed
Bboxx, on the other hand, has returned to on-balance-sheet loans for financing since its initial foray into securitisation in 2015. In November, the company announced an €11m loan from the Off Grid Energy Access Fund, which is managed by asset management firm Lion's Head Global Partners, to finance the distribution of home solar systems in Togo in partnership with EDF.
"There have been conversations within the sector to be able to create a more centralised solar bank that can help standardise the securitisation process from contract origination to actually selling the receivables off balance sheet," said Bboxx CEO and founder Mansoor Hamayun. "I think that a more centralised approach has a lot of merit. Until that point, Bboxx has been more focused on trying to lower the cost of capital as much as possible, and often we have seen that on-balance-sheet financing’s all-in cost of capital has been lower than off-balance-sheet financing, especially because of the transaction costs involved."
But he said that the Bboxx welcomed any financial innovation that could help mobilise the billions of dollars needed to bring sustainable energy to African households and meet the UN's Sustainable Development Goals.
"Bboxx continues to look at new and better and more efficient solutions to scale up access to solar financing for our customers across the 11 countries we operate in and beyond," he said.
Updated story: Adds quote in fourth paragraph.