Infrastructure Private Equity Fund

Infrastructure

Private Equity

Fund

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05

Developing Africa through Infrastructure The Investment Case for Infrastructure

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The STANLIB Infrastructure Private Equity Fund 1

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Introduction

The STANLIB Infrastructure Investments team is the evolution of an initiative created between STANLIB and Standard Bank. Standard Bank recognised the infrastructure investment opportunity, through its Project Finance franchise, resulting in the establishment of a highly successful Infrastructure Equity team. Due to changes in banking regulations, STANLIB has acquired the Infrastructure Equity Team, its assets and pipeline and STANLIB is now in a position to offer institutional clients investment opportunities in this exciting new asset class. While most infrastructure funds invest in both early and late- stage assets, STANLIB will not mingle assets in different phases of the life-cycle, that is, it will manage private-equity-like projects and yield assets in separate funds. STANLIB’s first infrastructure fund will target assets in the private equity stage of the lifecycle, in order to provide investors with the maximum return profile possible. As these assets mature, they will be sold to the market or the second fund that will manage yield assets (on an arms-length basis). In this way STANLIB will be able to offer investors both the risk and return profiles that infrastructure as an asset class provides.

The fund is known as the STANLIB Infrastructure Private Equity Fund 1, which is mandated to invest in Sub-Saharan Africa with a bias towards South Africa (initial indications are that approximately 30% of the assets will be outside of South Africa). The fund may invest in any infrastructure projects, but will specialise in renewable energy, and will look to take significant minority equity stakes where it invests. Of the R1 billion fund size, R500 million has already been secured in seed funding and R360 million has successfully been deployed in four projects.

The graph below depicts STANLIB activity and presence on the continent, including opportunities we are able to leverage, from a wider Standard Bank Group footprint.

Ghana

Standard Bank current physical presence Uganda

STANLIB was the first asset manager to set up an asset management operation in 2002

Swaziland

AUM of +E4.5 billion and biggest manager with local presence

South Sudan

First Asset Manager to manage money in South Sudan

Tanzania

Standard Bank current physical presence

Nigeria

Standard Bank made strategic acquisition of IBTC Chartered Bank

Kenya

Standard Bank made strategic acquisition of CfC Bank

Lesotho

STANLIB launched the first unit trust in Lesotho as part of the Lesotho Government's privatisation initiative

Namibia

Launched the first Property Unit Trust in Namibia in 2007

Botswana

Currently has the biggest unit trust platform in the country and running the biggest Money Market Fund in Botswana

South Africa

Largest Management Company in Africa

• Current physical presence • Markets serviced from other jurisdictions • Potential presence

WEST AFRICA EAST AFRICA

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Developing Africa through Infrastructure

Infrastructure in Africa

By 2035, Africa will have the world’s largest workforce, with over half of the population currently under the age of 20. Sub Saharan Africa’s GDP has increased by a factor of 3.8x since 2002 and is expected to keep growing by 6% per annum. However, for Africa to fully exploit this position, it needs to spend USD90 billion per year to upgrade and maintain its infrastructure over the next decade. As only USD50 billion is currently available due to government budgetary constraints, private sector capital is expected to play an increasingly important role.

There are over 800 active infrastructure projects in Africa with a combined value in excess of USD700 billion. Currently, over 40% of all capital invested in Africa has been allocated to infrastructure projects, a third of which was allocated to energy and roads.

With a rapidly changing economic and policy environment, the infrastructure investment sector faces a range of issues and opportunities:

Љ Climate change legislation and regulation of greenhouse gasses represent a key area of interest for infrastructure investors

Љ General fiscal stress suggests private capital will be increasingly needed for financing infrastructure capital expenditures

Љ Availability and terms of debt will remain a major driver for overall infrastructure investment activity

Љ The uncertain inflation outlook, not only in Africa, but globally, could mean an increasing demand for assets that are structured to provide an inflation hedge

Љ Infrastructure gaps are consistently cited as the biggest challenge to doing business in Africa

The Investment Case for Infrastructure

After the Financial Crisis of 2008, investors placed more emphasis on the liquidity of an investment than they had previously done. Infrastructure is an asset class for which there is a very limited secondary market and its lack of liquidity kept many potential investors away. Investment in infrastructure projects is therefore limited to parties that have a long time horizon and seek the following qualities that infrastructure investments provide.

Relative Returns - The limited supply of infrastructure capital, and the great demand for it, has led to led to returns in excess of what other asset classes have provided. Given that most asset classes have performed very well over the last five years, the return of infrastructure has been exemplary. (See figure 1) The picture going forward is more difficult to predict with most asset classes projected to show subdued returns relative to their recent performances.

Nominal Returns - All Business Cycles (ZAR)

Domestic Listed Property - JSE Listed Property Index Foreign Equities - MSCI World Index

Domestic Fixed Income - JSE All Bond Index Domestic Equity - JSE All Share Index 0 500 1000 1500 2000 Jun-13 Dec-12 Dec-11 Dec-10 Dec-09 Dec-08 Dec-07 Dec-06 Dec-05 Dec-04 Dec-03 Dec-02 Dec-01 Dec-00 Dec-99 Dec-98

Domestic Infrastructure - JSE Infrastructure Index

Significant Defensive Qualities – Infrastructure’s returns are not generally influenced by normal financial indicators, as the off-take of the underlying projects is contractually guaranteed for long periods into the future (these contracts usually include inflation-linked escalations, which makes infrastructure an inflation-hedged investment). With a high proportion of income guaranteed and predictable, infrastructure is highly resilient in down-business-cycles (See figure 2)

Nominal Returns - Down Business Cycles (ZAR)

Domestic Listed Property - JSE Listed Property Index Foreign Equities - MSCI World Index

Domestic Fixed Income - JSE All Bond Index Domestic Equity - JSE All Share Index 50 100 150 200 Aug-09 Jul-09 Jun-09 Ma y-09 Apr -09 Mar -09 Feb-09 Jan-09 D ec-08 No v-08 O ct-08 Sep-08 Aug-08 Jul-08 Jun-08 Ma y-08 Apr -08 Mar -08 Feb-08 Jan-08 D ec-0 7 Aug-99 Jul-99 Jun-99 Ma y-99 Apr -99 Mar -99 Feb-99 Jan-99 D ec-98

Domestic Infrastructure - JSE Infrastructure Index

Figure 2.

Benefits from market up-cycles – while the majority of a project’s off-take is pre-sold and predictable, there is a component of the income-stream that is variable and highly correlated with increased market activity. This means that an up-business-cycle is good for infrastructure returns.

Nominal Returns - Up Business Cycles (ZAR)

Domestic Listed Property - JSE Listed Property Index Foreign Equities - MSCI World Index

Domestic Fixed Income - JSE All Bond Index Domestic Equity - JSE All Share Index 0 300 600 900 1200 1500 Jun-13 D ec-12 D ec-11 D ec-10 D ec-09 D ec-06 D ec-05 D ec-04 D ec-03 D ec-02 D ec-01 D ec-00 D ec-99 Aug-99

Domestic Infrastructure - JSE Infrastructure Index

Figure 3.

Low correlation with other asset classes – because infrastructure’s return is largely unaffected by prevailing market conditions, it shows a low correlation with other asset classes. This makes infrastructure a valuable diversification tool in portfolio construction as it reduces volatility and consequently increases risk adjusted returns.

The characteristics and benefits of infrastructure are best summarized below:

Characteristics of Infrastructure

Active Management

Benefit to Investors

elasticity Stable predictable Cash Flows

Long Operational Life Underlying Cash Flows linked to inflation Hands on development expertise Attention to detail in due diligence and

execution Community acceptance and regulatory expertise Optimising effectiveness of capital structure and expenditure Operating expertise and risk

management

Long-term alignment of

interest

Stable returns and low volatility

Low correlation produces diversification

benefits

Inflation Hedge Long duration and asset /liability matching

Excellent risk adjusted return

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Infrastructure Life-Cycle

Infrastructure projects tend to go through two distinct phases in their life-cycle, each of which has very specific risk and pay-off profiles that may appeal to different investors.

The first phase follows the project from inception through to the completion of construction and ramp-up of operations. This phase holds the maximum risk, but potentially the highest increase in value and can be likened to the risk and reward profile of a private equity project.

The second phase begins once the project is fully operational through to maturity, or the end of the off-take contract. Due to the fact that the project should now be producing income and showing proof-of-concept, the investment risk is greatly reduced and the return profile is much the same as other yield producing investments.

Infrastructure Equity Risk Premium

A sse t V alu e Ri sk L ev el

Greenfield Construction Ramp Up Growth Mature

Yield fund

(in development)

Private Equity Fund

Project life

It provides a competitive advantage if an investor can get involved early enough to structure and negotiate terms that lay the platform for an outperformed risk-adjusted return.

St ag e o f C om pl et ion

Pre-Feasibility Feasibility _FeasibilityBankable Financial _Close Construction

TIME Term Taker

Ability to negotiate terms and structuring

The STANLIB Infrastructure Private Equity Fund 1

Investment Philosophy and Proces

Due to the operational complexity of infrastructure projects generally, an investor assumes risk that the project is not optimally managed in order to generate the required return. In the absence of a fund, an investor that commits capital directly to an infrastructure development must have sufficient time and knowledge to contribute to the day-to-day management of the project. This can be an onerous task and can act as a barrier to entry.

In the case of STANLIBs’ infrastructure offering, the management of the project is the responsibility of STANLIB Asset Management, who contract with infrastructure professionals to manage their interest.

STANLIB’s key criteria when assessing investment opportunities include:

Љ The project should have a strategic competitive advantage in an industry that has high barriers to entry. This should allow the project to hold a dominant position in its particular market.

Љ The project should have stable and predictable cash-flows to minimise risk and allow for transparent valuations.

Љ The project should have an experienced management team and STANLIB also considers its partners in each transaction very carefully.

Љ The project should also have long-term off-take agreements to minimise risk and optimise capital. Љ Any expansion or consolidation opportunities must be identified and evaluated.

Љ There must be clear exit opportunities to allow the fund to realise its investment when appropriate.

STANLIB Infrastructure Investments team attempts to enhance shareholder value by buying well, managing the assets well and selling well. Regardless of whether an investment is made in private equity- or mature assets, STANLIB will follow a consistent investment process:

2 Investment analysis

and due diligence

3 Financial Structuring, Corporate Governance and Commercial Negotiation 4 Investment recommendation and approval 5 Deal documentation preparation and execution, conditions precendent management 6 Performance monitoring, commercial management and corporate governance 7 Ongoing financial management and optimisation 8 Continual assessment of upside potential 9 Exit strategy execution 1 Sourcing of new investment opportunities INVESTMENT CYCLE

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The Team

Greg Babaya

Head of Infrastructure Investments

BCom, BCompt(Hons), MBA

Industry Experience – 18 years Greg has more than 18 years of experience in energy financing, project finance and infrastructure investing in Africa, North America and Latin America

He spent 12 years at Standard Bank, 9 years in the Project Finance business as head of Power and Infrastructure and for the last 3 years as head of Infrastructure Equity. Prior to joining Standard Bank spent 5 years with ABN Amro’s Integrated Energy and Project Finance group based in Chicago. Greg was responsible for all infrastructure fund investments and all equity and quasi-equity investments in infrastructure at Standard Bank

Greg has 10 years of experience on the governing board and investment committee of the South African Infrastructure Fund (SAIF) and has been chairman of the African Infrastructure Investment Fund (AIIF) since inception.

He holds a Bachelor of Commerce from University of Cape of Town (South Africa), a Bachelor of Commerce Honours degree from the University of South Africa and a Masters of Business Administration (MBA) from the Kellogg Graduate School of Business at Northwestern University (USA).

Andy Louw

BCom, CA(SA), CFA

Industry Experience – 13 years Andy joined STANLIB in June 2013, having previously served as senior executive vice president at Standard Bank, Infrastructure Equity, and, prior to this serving as Head of African Infrastructure Advisory at Macquarie First South. Prior to that, Andy had joint responsibility for Project Finance and Mergers & Acquisitions at Ernst & Young Advisory Services Limited. Andy’s first introduction to Project and Corporate Finance was at Standard Corporate and Merchant Bank

Andy has more than 13 years’ experience in project and corporate finance, with experience spanning across a wide range of debt and equity transactions in the resources and infrastructure sectors.

He is qualified as a Chartered Accountant with Deloitte and Touché, and holds a Bachelor of Commerce degree and a Diploma of Accountancy from the University of Kwa-Zulu Natal.

Moyahabo Mpanza

Investment Analyst

BAcc(CTA), CA(SA)

Industry Experience -

Moyahabo will be instrumental in the team as she plays an investment opportunity analysis and due diligence role. She will also form part of the team that is responsible for the funds’ administration as aligned to the Infrastructure Investments team’s continued rollout of its fund strategy.

Prior to joining STANLIB, Moyahabo worked as an Investment Associate at the National Empowerment Fund. Her core responsibilities involved performing due diligences, financial modeling and preparation of investment papers and interactions with various Investment Committees. She also worked for Ernst & Young’s Transaction Advisory Services Division where she was mainly exposed to buy-side financial due diligences and IPOs.

A Qualified CA (SA), Moyahabo completed her articles in the Industrial Products Sector at Ernst & Young. She also holds a Bachelor of Accountancy Degree (CTA) (Wits University).

Marisa Bester

Investment Analyst

BAcc, BCom(Hons)

Industry experience - 9 years Marisa joined Stanlib in 2013 as an analyst in the Infrastructure Investments team.

Marisa had previously been with Standard Bank’s investment banking division since 2004 where she initially spent 6 years in the infrastructure and project finance, and thereafter was with the leveraged finance team. Most recently she has been part of the Infrastructure Equity team working on private equity investments in the sector.

Marisa holds a Bachelor of Accounting and an Honours degree in Management Accounting both from the University of Stellenbosch.

Key Terms of the Fund

Legal Form The Fund is a closed-end fund established as an En Commandite Partner under the laws of South Africa

Currency Rand

Fund Manager STANLIB. The Manager is authorised and regulated by the Financial Services Board

General Partner STANLIB Infrastructure GP 1 (Pty) Ltd, a wholly owned Subsidiary of STANLIB

Investment Strategy The Partnership will make long-term equity and equity-related investments in a greenfield and brownfield infrastructure

projects located in Sub-Saharan Africa, principally in South Africa

Target Fund Size R1 billion. The Fund documents permit the GP to accept commitments of up to a maximum of R1.5 billion.

Minimum Capital

Commitment R50 million.

Cornerstone Investor Liberty Group Limited is the cornerstone investor for the Fund and has committed R500 million to the Fund

General Partner

Commitment The General Partner will make a minimum commitment of 1% of Total Funds Committed

Target Return The Manager will aim for the Fund to deliver an internal rate of return (IRR) of at least 18% to the Partnership after costs

Distribution to the Investors The Partnership will distribute cash proceeds received from the disposal of investments, together with any dividends or interest income earned from such investments as soon as practical after the quarter end, subject only to reserving for forseeable Fund fees and costs.

Term 10 Years, but with the possibility of extending for up to a maximum of two consecutive one-year periods.

Liquidity The General Partner may from time to time procure liquidity or exit mechanisms for investors, including trade sales, initial

public offerings, part portfolio sales, refinancing or other arrangements that achieve an exit for investors.

Commitment Period The Commitment Period will end on the fifth anniversary of the first closing date of the Partnership.

Contact Details

Should you have any questions about the detail provided in this document of if you would like to meet with the Fund Manager to discuss his management style in greater depth, please contact us using the following details:

Greg Babaya Fund Manager T +27 (0)11 448 6132 E greg.babaya@stanlib.com Andy Louw Principal T +27 (0)11 448 5368 E andy.louw@stanlib.com

Legal Notices Information and Content

The information and content (collectively ‘information’) provided herein are provided by STANLIB Asset Management (“STANLIBAM”) as general information for information purposes only. STANLIB does not guarantee the suitability or potential value of any information or particular investment source. Any information herein is not intended nor does it constitute financial, tax, legal, investment, or other advice. Before making any decision or taking any action regarding your finances, you should consult a qualified Financial Adviser. Nothing contained herein constitutes a solicitation, recommendation, endorsement or offer by STANLIBAM.

Copyright

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Disclaimer

STANLIB has taken care to ensure that all information provided herein is true and accurate. STANLIB will therefore not be held responsible for any inaccuracies in the information herein. STANLIBAM shall not be responsible and disclaims all loss, liability or expense of any nature whatsoever which may be attributable (directly, indirectly or consequentially) to the use of the information provided.

STANLIB Asset Management Limited

Registration No: 1969/002753/06. A Financial Services Provider licensed under the Financial Advisory and Intermediary Services Act, 37 of 2002. FSP license No: 719.

Document relevant as of 17 March 2014 3:36 PM Compliance number: D8R476