Interviews  
20 February 2017

Exclusive interview: Andrew Moorfield

Co-Head of Investment Banking & Head of Natural Resources at Exotix Partners.

Andrew is a featured speaker at the Finance & Investment Forum during the upcoming African Utility Week in Cape Town in May.

1)    Let’s start with some background about yourself and Exotix?
I have been a natural resources banker for well over 25 years and have worked for some of the largest natural resources banks in the world such as Bank of America and Citibank, Lloyds Banking Group and also Scotia Bank. I joined Exotix last year to build out the natural resources platform and also the investment banking group.

In terms of Exotix, it is a privately owned UK investment bank and the UK’s only frontier market focused investment banking advisory service. It has been in existence for 18 years. It has a couple of claims to fame. First of all, it is one of the largest traders of frontier market debt and equity in the world and secondly, we have more analysts covering frontier stocks than any other firm in London and indeed New York. So, Exotix is known for its focus on sales, trading and research across frontier markets and building out an investment bank makes logical sense, because an investment bank can take advantage of the sales, trading and research platforms.

2)    What is the most exciting project you have worked on in Africa so far?
We have been mandated on three transactions and each had their own level of excitement, I must say. We have a transaction in East Africa, in Tanzania; in Central Africa, in the DRC; and we have a transaction in Nigeria. Each transaction has its own physical challenges, i.e. getting the resource out of the ground in a secure manner which is consistent with conflict-free and also OECD and environmental standards, all of which we have achieved on the three projects. But I think the biggest challenge and the most exciting area of the projects is attracting foreign capital to sub-Saharan African projects and because they are natural resources, by their very nature they are also infrastructure, impact investing, as well as being driven by returns. As a result, the level of excitement that these projects are harnessing is very strong, attracting good investor interest. The two coastal projects are oil and gas, and the one in the DRC is a mining development.

3)    What did you learn from the investments that did not do so well?
It’s actually investments out of Asia that haven’t performed as well. For example, there was a gas project that we launched as a debt deal and we had a real estate project out of Central Asia that we launched as an equity deal. We found that the debt deal out of Asia appealed more to equity investors who liked the upside, whilst the equity deal out of Central Asia actually appealed to debt investors who liked the certainty of return. So, we flipped both deals; the debt deal became an equity deal and the equity deal became a debt deal.

So, the lessons we’ve learnt from investments is that one has to be very flexible. Ultimately what we are marketing out of frontier markets is a stream of cash flows and those cash flows have to be tailored to the unique needs of investors. Furthermore, there is really a limited pool of investors who have an appetite for frontier markets, whether it is sub-Saharan Africa or elsewhere. As a result we have to very much structure each transaction almost on a bespoke basis to meet the unique needs of an investor.

4)    But there is money to be made on frontier markets?
There is, there is. Quite frankly, we are not doing an investment grade deal for a US motor manufacturer. We are doing highly structured, idiosyncratic and challenging transactions in challenging parts of the world, where there is not much of a track record and against the backdrop of coming out of a global recession and commodity decline. As a result, there are a number of hurdles to overcome and so these are very challenging deals. That being said, we are finding that there is appetite for emerging and frontier market projects. They just have to be structured appropriately for each investor and as importantly, it has to hit the return requirement for investors. Clearly, investing in sub-Saharan Africa involves a risk premium that you wouldn’t get when investing in Europe, and you have to accommodate that.

5)    Do public-private partnerships feature a lot?
Not so far. The transactions we’ve done have all been in the private domain. That being said, one of the projects we have has a significant DFI (development finance institution) involvement, which is really a public element and the DFI involvement is really about corporate governance, environmental standards, but also, quite frankly, it’s about bringing via financial means stability to quite troubled areas of the world.  So we are not doing public-private per se, but we are seeing an increased prominence by government or quasi government organisations, which have clear humanitarian and economic ambitions.

The good thing about the DFIs is they take a very long term view. They like infrastructure, they understand Africa, they’re aware of the risks in Africa, and they are often staffed by people who are familiar with the region and indeed locals. They’re sympathetic to the challenges of doing deals in Africa, so there is no rude awakening. Among these challenges,deals are often slower than in the West, they are more complex, the regulatory and governmental regimes are not as clear cut and as a result the transactions themselves do require a little bit more insight and a little bit more thought.

4)      What in your view is the biggest misconception that people have about investing in Africa?
Some people forget that Africa is not one country but is a number of countries, and that East Africa, North Africa, West Africa and Southern Africa all have a number of different characteristics, strengths and weaknesses. So I think the biggest misconception is for non-Africa focussed investors to have a broad brush approach to the continent.

6)    How important is the personal interaction when doing deals? How important is it to travel to Africa to develop personal relationships? On the one hand, there is a deal that is on paper and on the other hand there is a relationship that is developing with partners.
Absolutely vital. We have a rule within Exotix that we will not sponsor a project unless we have actually seen it. So myself and a colleague have travelled down to Dar es Salaam, I have been to Lagos, Abuja, Accra. and that’s just in the course of the last two months. The human connection is important.  First of all, unless you know the individuals, you don’t know, quite frankly, the true rationale, the benefit and also the passion behind the project. But it is also important to meet the government ministers, the members of the bureaucracy and members of the fellow banks too.  Exotix likes to work with local partners, such as banks and governments, and the only way to do that is to build that local relationship, which is absolutely critical.

5)      Which countries on the continent are doing the right things? Where are the opportunities?
I’ve got to be biased by my background of natural resources, so in terms of oil and gas the stand out regions are Tanzania and Nigeria. Tanzania because of its significant gas reserves. Nigeria has had a change in government, significant oil and gas reserves and the country has done a very successful foreign bond issuance, has significant untapped reserves and significant producing reserves, so we are ultimately driven by where the hydrocarbon activity is taking place and that is on the east and the west coasts.

So we rate both Tanzania and Nigeria very high. Tanzania is quite open for business and has a relatively buoyant economy – we at Exotix rate it as one of the strongest performing economies in SSA.

Likewise, I think Nigeria is making significant efforts to reform, albeit with a very troubled history. It is making serious efforts to tackle corruption.

Across the continent, what we are seeing is a greater awareness of regulations, but more crucially the importance of imposing regulations. Developments like the Dodd Frank Act out of the US, oddly enough has helped. And why has it helped? The Dodd Frank Act also has an element of conflict-free resource, and having the US, which is a huge buyer of natural resource, insisting via government regulations that the resource be conflict free, is an enormous spur towards appropriate developments and having appropriate safeguards in place.

6)      You are the head of oil and gas at Exotix – how do you see the continent’s energy mix looking in 10 years’ time in terms of the increasing adoption of renewables?
We’ve been mandated on both traditional oil & gas deals, mining deals, but also renewables deals. Just to give some context, I used to chair the OECD Middle East and North Africa Renewables Committee for four years, so I have the perspective from a governmental regulatory body and the hands-on financial perspective. The common challenge with renewable deals is they have to be profitable.  Often renewable transactions, and this is more of a Western European phenomenon, are heavily subsidised by government to make them work.

In Africa, in particular, the renewable transactions actually have to stand alone and be cashflow positive within an agreed timeframe. So renewable deals have to be robust and profitable. The benefit of Africa is that it has a number of natural, geographic attributes: it has sun, it has wind and it has biogas. and as a result there is a strong argument to be made (and we are already making it on one deal) that renewable deals in Africa, when appropriately handled, can actually be profitable and as competitive, indeed more competitive, than traditional hydrocarbon projects.

The benefit of some solar and biogas deals is that the feedstock, which is sun or biogas material, is almost inexhaustible, while oil and gas is a declining resource.

9)      What will be your message at African Utility Week this year?
The Exotix view and my personal view is that the worst of the commodities cycle is over. I think there is an argument to be reasonably bullish on commodity prices, both hydrocarbons and also base metals.  As a result, Africa, which is a reservoir of hydrocarbons and base metals, is very well placed to provide for both domestic and international demand. So I think the message is very upbeat.

The challenge for Africa is it’s resource rich but capital starved. However, the capital can come if there is the appropriate regulatory regime and environmental standards in place, and the return requirements of investors are met, and I think we are beginning to see that.

With regards to South Africa in particular, it has without a doubt the most developed market on the continent, so it starts from a leading position. But even South Africa has some of the challenges that you see across Africa, as well as what you see across Western Europe. South Africa does need infrastructure, and as the GDP grows, the energy demand will grow, and whether that is met by utilities or by other forces of energy and power, South Africa will face the common conundrum of other countries, which is how to attract foreign capital. So although South Africa is the leading economy in the region, it will be somewhat in competition with other countries for investment.

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