Johannesburg 10 October 2011
With Abacus Financial Services – one of the portfolio companies in its second, Musa Kubu, fund – pan-African private equity and advisory firm, Musa Capital, has acquired a R50 million pension-backed housing loan portfolio and raised an additional R15 million for working capital and portfolio expansion, financed by Absa Bank.
The loan portfolio, managed for the past six years by Abacus in a joint venture (JV) with Absa, enables middle to low income earners who would otherwise not have access to finance to borrow funds for buying, building, or improving homes using their pension withdrawal benefit as security. They can also use the funds to obtain conventional mortgage bonds from other financial institutions. Borrowers repay their Abacus loans through salary deductions – and all loans must be repaid before the borrower retires, ensuring that loans do not impact retirement resources.
Musa Capital director, Will Jimerson, explains that the KubuFund’s initial investment in Abacus helped trigger rapid growth for the company. “So when an opportunity arose to buy the book from the Absa JV and, thereby, enable Abacus to create more jobs and extend the portfolio by generating more loans, particularly to people in underprivileged areas, we jumped at it.
“This kind of acquisition is both strategic and organic for Musa Capital. It gives us the capital to expand our existing R250 million financial services platform, which is focused on stimulating grassroots economic growth in Africa. We achieve thisby triggering early and significant growth in the small to medium-sized enterprises that provide basic services to the people who need it most, thereby ensuring socio-economic upliftment.In the case of Abacus, the basic service provided is access to finance for yet another basic human need: housing.
“The new facility gives more direct control of the loan process to Abacus, thereby removing limits to the number and size of loans Abacus can generate and positioning the company to provide a more efficient turnaround time on its loan applications and a better service to its clients. That’s a good recipe for growth for Abacus and for a return for investors. So, everyone wins.”
Closed at the end of September, after a due diligence by Absa on the portfolio and Abacus as the servicing agent, the Musa transaction is based on Absa providing a R50 million loan to Somnitron, the remote special purpose vehicle set up by Musa to purchase the book and service the debt. Somnitron will also have an additional R10 million facility to originate new loans. Somnitron will pay Abacus a servicing fee for doing the collections on the portfolio and Absa will provide Abacus with R5 million in working capital to assist with operational growth. Musa will provide subordination of 6.2% for the R50 million debt.
Somnitron is 100% owned by the Musa KubuFund. The largest investor (79%) in the fund is the 35 000-strong Bakubung Ba Ratheo community of North West Province. The community’s shareholding in the fund is managed through the Bakubung Community Development Corporation (BCDC), a section 21 entity thatmanages the financial interests of the community as guided by the community’s Kgosi and its Traditional Council.The community’s 79% shareholding in the Musa KubuFundeffectively provides Abacus with a 65.3% black shareholding.
About Musa Capital
Musa Capital Group is a private equity investment manager and financial advisory firm with a unique focus on sub-Saharan African markets. The firm has 16 years’ experience of using creative financial engineering techniques to execute profitable transactions in derivatives, structured finance, project finance, and mergers and acquisitions. It has advised clients from around the globe, bridging global capital and expertise to African opportunities in sectors as diverse as infrastructure, natural resources, telecommunications and consumer-facing industries.
Musa has a proven track record of delivering exceptional returns. Its first fund achieved a realised IRR of 26% and an average dividend yield across the portfolio of 12%. Its second fund, the Musa KubuFund, has R575MM (~US$82MM) targeted towards supporting entrepreneurs in the middle market space. In that space, while remaining opportunistic, the Fund focuses on financial services, energy and natural resources, consumer goods, telecommunications and agri-processing industries.