Mozambique’s Banco Nacional de Investimento (BNI) is a hybrid between an investment and development bank which was created in 2010 as a joint partnership between the Mozambican government and the government of Portugal.
In December 2012, with economic uncertainty in the Eurozone following the financial crisis, it became a 100% Mozambican entity, 100% government owned and with assets of approximately $150m. The bank has worked on a number of projects, helping structure deals as well as financing them, and in general focuses on projects that will contribute to the social and economic development of the country. The bank’s president and CEO, Tomas Matola, a veteran of Mozambique’s finance industry, spoke to African Business about the bank’s activities and future plans.
Can you talk us through the investment banking activities of the bank?
We act as advisers for financial restructuring, mergers and acquisitions and fundraising. Why fundraising? Because we don’t yet have enough balance sheet to finance all our projects. When we can’t finance a project via our balance sheet, we acquire mandates to raise funds from international market.
We do that for the private sector, for public companies, and for government. Some projects cannot be financed solely from the Mozambican financial system and that’s why we have this role to look for funds from international markets. We have financed projects in agriculture, in mining, in transport and telecommunications, as well as in fisheries.
Can you be more specific in terms of sectors and projects?
We helped structure the deal for Maputo-Katembe Bridge and also raised funds, close to $100m, for an electricity centre. But we also advise and provide finance for smaller projects.
We have been managing some lines of credits from our partners, for example, they are required to finance agriculture but don’t have the expertise for that, so they partner with us and we manage these funds to ensure that they will reach the final user. When those in the agriculture sector use commercial banks, the interest payments they incur means that the development objectives are not achieved.
When you talk about a $100m electricity project, what is the exact role of your bank, the role of other banks and the role of government?
Some projects are structured as project finance but in cases like the electricity project, this amount will be supported by the balance sheet of the company. We negotiate all the conditions and after the financial close, these funds go straight to the company.
Sometimes, if they are not comfortable enough with the balance sheet of the company, the investors require sovereign guarantees. In that case, our responsibility is to negotiate with the minister of finance to get the sovereign guarantee. If the projects have social impact and meet certain conditions, the minister of finance will generally provide it.
Can your balance sheet support the financing of all these projects?
Before the depreciation of the metical [the local currency] we had a balance sheet of over $200m; now it’s around $150m. But we are talking to the government to strengthen our balance sheet because it’s difficult to even talk about raising large funds if your balance sheet is small.
We argue with the government that if it wants us to raise funds for big projects, it has to enhance us in terms of balance sheet. We are confident that once they receive funds from the Eni and Exxon Mobil deal, they will use part of this money to increase our balance sheet.
In order to recapitalise?
Yes, but as you know the country has had many difficulties and there are many needs to be financed. We don’t know if recapitalising the bank will be the solution but we are working on that. This is one way to increase our balance sheet.
But we are also negotiating some concessional financing that will be done via the government balance sheet. By this route, commercial funders will finance the government balance sheet and then the government will finance us at a very low interest rates, so that we can use these funds to finance development at a competitive rate.
This will affect all those projects that have development impact and that cannot be financed due to the high market rates currently prevailing in
Mozambique has been in the press for the wrong reasons over the past couple of years. How does this affect your fundraising when you go to international markets?
I can assure you that we suffered a lot because of this crisis. Before the crisis, we were negotiating the funding of some projects but investors wanted to find out the outcome of the IMF report and the results of the international audit.
The message that we are selling today is that this is the best moment to take a position on Mozambique because things have changed. The investors who come to Mozambique now will get the best opportunities.
The Eni deal helps us a lot because it has shown that it believes in this country and believes that things are changing for the better. That’s why they signed the deal.
What large-scale opportunities and projects are you currently looking at or advising the government on?
There are opportunities in four areas and all of them will be improved by the liquefied natural gas (LNG) projects because they will need support not only upstream but also medium stream and downstream. All this will provide many opportunities for Mozambican and international investors.
Construction is another area: for example we looking at a cement plant to support the construction sector. Also, we are looking at electricity. As you know, we have rivers – now we use gas – but we have potential in terms of hydro. We have the potential to generate 12.5m MW in terms of hydroelectric.
There are some projects where the feasibility studies have been completed, others where feasibility studies are still ongoing but expected to be completed soon. Given our location, we can also export power to South Africa, Zimbabwe, and Namibia. We have concrete projects to show to investors in this sector. And as I mentioned there are four strategic sectors for government: infrastructure, power, agriculture and tourism.
Do you finance feasibility studies?
Not yet but we have a plan in our budget for this. In our five-year strategic plan we have included a budget to finance feasibility studies, as many viable projects are not being financed due to a lack of feasibility studies.
We also want to get into private equity, so we have a fund specifically for private equity investments. Why? Because 98.6% of the private sector in Mozambique are SMEs. It is difficult for SMEs to get loans, where interest rates can reach 50%!
We saw that the best way to help SMEs is using private equity (through a structure called BNI Capital) buy shares in these companies, get into the management board and help them grow. They can then purchase these shares back, or we can exit through the capital markets, something we also want to develop.
Did the crisis in Mozambique affect your bank?
Yes, the crisis affected our bank, as it affected the whole system. Because of the crisis, interest rates went up, and the currency depreciated. Inevitably, bank activity was reduced and the non-performing loans of all the sectors increased, because companies either closed or projects were put on hold.
For us, while we had agreements with government to receive some disbursements of funds, because they were facing difficulties they could not do so, which slowed down what we could do. It meant that we had to readjust our plan and our budget.
But fortunately, in 2016, we closed well, with a net profit 10% higher than in 2015 and even the performance, in terms of return on assets and return on equity, was good. And on debt, I’d like to emphasise that KPMG recognised us for our efficiency ratio. For 2017, I think the profits will be less than in 2016 but not by much. But it’s good to note that we have a profit.
Our return on asset and our return on equity will be good, and will be very close to the previous year. So, I can say that in terms of performance, we were affected by the crisis but in terms of performance measured by ratios, we are still good.
One of the measures we took when we saw that the crisis was affecting us, was to reduce expenditure, thus reducing the cost line. And also, we decided to add more sources of revenue. We added more products to ensure that we would secure revenues, especially on the advisory side.
For this year we have put forward an ambitious strategic plan so that we are ever more active in the economy. We are seeing a return of FDI, and with the start of the LNG projects, things will change in terms of employment, in terms of exchange rate, in terms of our balance of payments, in terms of our international reserves. So, expectations are high. We feel that slowly the economy is recovering and are very confident for 2019 and 2020.