Taaleri Partners with Cytonn to Increase Real Estate Project Financing

Taaleri, a Finland-based NASDAQ OMX listed company in Partnership with Cytonn Investments have increased their commitment to finance additional real estate projects in Kenya by Kshs 400 mn, from the Kshs. 2.1 bn currently committed, to Kshs. 2.5 bn. Under the allocation increase, Taaleri will provide further development capital that will be deployed to the real estate sector through Cytonn Real Estate, the development affiliate of Cytonn Investments, whose deal pipeline now stands at Kshs 56 bn.

Cytonn Real Estate has been undertaking a number of real estate projects in Kenya, with an 85% focus towards the low to mid-income segment of the housing market. Last year, they broke ground for Amara Ridge in Karen. Looking at the returns from various asset classes over the last 5 years, research has consistently shown that real estate has delivered the highest returns and is poised to continue to do so over the next 5 to 10 years given the strong economic growth, demand for affordable housing, scarcity of high quality commercial space, and the strategic location of the Kenya as a regional hub.

Continental Reinsurance Plc, which holds a 3.5% in the Kenyan reinsurance market through their East African affiliate, has sold a 49% stake to Nigerian based Capital Alliance Private Equity IV Limited for an undisclosed amount, a private equity fund sponsored by African Capital Alliance (ACA). The acquisition dilutes Moroccan Saham’s Finances (the insurance arm of the Saham Group) which initially had a 100% stake in the company. The Lagos-based firm has operated in Kenya since 2009 and has a market share of 9.58% and 3.49% in non-life and life business respectively (based on 3Q15 figures). The move positions Continental Reinsurance favourably to bolster strategic objectives and strengthen its Pan-African foothold, expansionary plans and market positioning as the largest private Pan-African reinsurer, outside of South Africa. Continental Re has operations in 44 African countries, with its main offices in Nigeria, Kenya, Cameroon, Côte d’Ivoire, Tunisia and Gaborone.

According to the African Private Equity and Venture Capital Association (AVCA), the value of private equity deals in Africa fell to USD 2.5bn from a high of USD 8.1bn in 2014. This was due to (i) fewer deals above USD 250mn as deals below USD 250 mn remained relatively stable and (ii) challenges faced by African economies including currency devaluation, slowdown in china and a fall in commodity and oil prices. Between 2010 and 2015, West Africa attracted 25% of deal value with South Africa trailing it at 15%. In terms of sectors, telecommunications services were the most popular investment accounting for 31% of total deal values followed by utilities (16%), financials (11%) and energy (10%). Sub-sectors that saw a notable increase in PE deal values in 2015 relative to 2014 (albeit from a low base) were commercial and professional services (Industrials), health care equipment and services (Health Care) and software and services (Information Technology). In our view, the outlook for 2016 remains promising. PE investment is likely to continue to be geared towards the FMCG sectors, with infrastructure, real estate and energy also attracting a substantial interest from investors. Sub-Saharan Africa (excluding South Africa) remains the focus for PE investment in Africa.

Private equity investment in Africa, specifically East Africa continues to improve, as evidenced by the increase in the number of deals and deal volumes into the region, and the closing of various fund raising activities by funds focused on investing in Africa. With Nairobi having been ranked in the Shop Africa 2016 report by Knight Frank as the hottest retail property market outside South Africa. Infrastructure, real estate, natural resources and energy continue to be preferred by PE firms, but financial services, healthcare, education, and IT are gaining ground.

See full Cytonn Weekly Report here.