image description

Denham Capital Sees $200M in African Power Investment from Latest Fund

Managing director Scott Mackin sees “very significant increase in appetite for operational assets in Africa”

Denham Capital Management could invest as much as $200 million from its latest fund in African energy deals, Managing Director Scott Mackin told LBO Wire.

The estimate from Denham comes amid calls for increased infrastructure spending in Africa overall, and in the energy sector in particular. Africa will need to spend around $90 billion a year over the next decade to keep up with the demand for infrastructure, according to Ebrima Faal, regional director of the African Development Bank, cited in an Ernst & Young study on African business in 2013.

Attendant with that rising demand is an increased appetite for investors to acquire projects in Africa, Mr. Mackin said. “What we’re seeing in general is a very significant increase in appetite for operational assets in Africa,” Mr. Mackin said.

Mr. Mackin’s firm, Boston-based Denham, is currently investing from its Denham Commodity Partners Fund VI, which closed on $3 billion in May 2012.

Power investment in Africa has attracted a number of energy and power-focused private equity firms in recent months. In early December, American Capital Energy & Infrastructure, an investment fund operated by the publicly traded private equity firm American Capital, committed to invest up to $130 million in the African power project developer Azura Power Holdings Ltd. In November, Actis acquired the electric generation and distribution assets of AES Corp. in Cameroon for $220 million, according to reports from Dow Jones.

“Investors from the Middle East, Asia and large infrastructure investment funds are looking at power assets [in Africa],” said Mackin. “There’s a lot of money coming in and a very low cost of capital.” With those types of acquirers on the horizon, it makes earlier stage investment in power and energy projects in the continent more attractive.

Denham has a significant African portfolio through investments in existing portfolio companies on the continent. It’s an investor in Endeavor Energy Holdings LLC, a developer of power projects across the continent.

Earlier this year, Houston-based Endeavor Energy signed a joint development agreement with Joule Africa to develop and construct a $700 million second phase of the Bumbuna power project, a hydroelectric power project in Sierra Leone, which will add 202 megawatts to an existing 50 megawatt facility.

Through that project, Endeavor Energy has agreed to invest up to $150 million, or 75% of the project’s equity at financial close.

As it looks at the opportunities ahead, it seems likely that Denham will look to tap strategic partners to co-invest alongside the firm in new projects, according to people familiar with the firm’s plans.

Mr. Mackin declined to comment on specific fundraising plans for portfolio companies.