Emile Du Toit of Harith General Partners on $200m capital raise

Du Toit, who has over 11 years of Corporate Finance experience, joined the BizNews Power Hour to talk about doing things differently. Harith General Partners has been raising capital for infrastructure investment into Africa for over a decade; $200m is the number they are chasing now. Du Toit says you can find better deals in what are labelled as “risky” countries, like Zimbabwe.

Emile Du Toit on Harith General Partners:

 We’ve been investing in infrastructure since 2007. As you said, at the time, there were not many people doing that. We’ve currently have over U$1.2 billion under management. To put it into context, this new fund that we’re raising for U$200 million is actually quite unique and it’s fairly small in the context of our other funds.

But we’ve specifically also structured it to be a shorter-term nature fund. So we think it makes it quite attractive, especially for some of the new pension fund and institutional investors that have been looking at regulation 28. They want to get exposure to infrastructure assets, but don’t necessarily want to go into a fund for a 10 to 12 year life with very limited liquidity. The other reason this fund exists – and why we’re raising it – is because we are getting towards the end of our fund two, where we’ve almost fully invested – but we’ve got more investment opportunities than we’ve got funds left.

That’s why we’re not calling it a fund three. It is what we call a sort of a shorter term nature, top-up fund to our second fund. What we’ll invest in mostly is our existing portfolio companies expansions. From an investor perspective, they’ve got a good visibility over what we will invest in. I think that gives investors a lot more comfort to open up to this asset class.

On who the investors are:

We’re basically starting our fundraising now and again, it’s a fairly small fund for us. We will target all our existing investors – give them an opportunity to invest, as well as a small number of mostly South African institutional investors. We are looking to target some of their pension funds and looking to get into that space.

The attractiveness is also not just with regard to bolt-on opportunities, but the issues that we generally end up doing – greenfield infrastructure – which means you also take construction risk and very often two to three years, for some of these larger projects. What we are doing in this fund is to invest in projects where there’s very little construction risk. We know that it’s very well, we know the management teams, we’ve seen the track record and we believe we’ve got an exciting entry price into a number of these assets.

To the extent that we’ve raised the full amount, we would potentially invest in one or two greenfield assets as well. But mostly, the fund will be targeted at some of our existing portfolio assets. That’s also the reason we can then see a shorter time frame, in terms of exit opportunities and liquidity for investors.

On investing in high-risk areas in Africa:

We’re not exposed specifically to those areas but when we look at opportunities, we not so much look at the country, but we look at how we can mitigate the risk in the specific projects. One of our latest deals we’ve announced was the Beitbridge border post in Zimbabwe. A lot of people would potentially have Zimbabwe on a no-go list.

But if you actually get a transaction, structure and you can mitigate the risks properly – and we’ve had experience in doing that over the last 15 years – then you can actually find some of your better deals in some of the more risky countries. But we really do go belts and braces in terms of risk mitigation.

What you’ll find is, for example, in the Beitbridge project in Zimbabwe, most of the South African banks -co-invested with us. Those are pretty much risk averse kind of investors if you think about it. It’s not really about where we are and whether there are hot spots are not. But we do avoid areas where we would potentially see very high levels of political and other risks.

 

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