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Standard Bank paves the way for local currency lending

02 Mar 2018

Power and Infrastructure
Business Unit
Investment Banking
In a first-ever guarantee collaboration with the development finance institution Société de Promotion et de Participation pour la Coopération Economique S.A. (Proparco), Standard Bank assembled an innovative local funding structure for the construction of a ZAR 950 million 45-megawatt solar photovoltaic plant in Namibia.

Located in the Hardap region, 230 km south of Windhoek, the new plant will be built on 1 square km of land and will feature 140 000 crystalline silicon panels mounted on solar trackers. The project is one of the largest to date in Sub-Saharan Africa. 

Alten Hardap, the Namibian subsidiary of Spain’s Alten Energias Renovables, holds a 51% stake in the Maritental renewable power project which has a 25-year offtake agreement with NamPower. NamPower is a 19% stakeholder, while a consortium of three Namibian investment companies, led by women, hold the remaining 30%.

Structure of the deal   

Standard Bank effectively secured a phased risk transfer guarantee from Proparco, with a deal structure that allowed them to extend the tenor of the funding by Standard Bank from 8 to 15 years. Since the project did not benefit from a government guarantee, there was no political risk protection in the power purchase agreement between NamPower (the Namibian power utility) and Alten Hardap, the independent power producer (IPP) and sponsor developing the plant. In response, Standard Bank partnered with Proparco to build a hybrid guarantee structure which allowed the development finance institution to extend a ZAR-based guarantee to Standard Bank, which aligned with our risk appetite. Standard Bank’s strong in-country balance sheet and presence enabled Proparco to take on the credit risk in local currency, effectively reducing the bank’s own project exposure from 15 to the first eight years of the project. This removes the additional cost of political risk insurance since the guarantee from Proparco extends the tenor to the client by a further seven years.

Benefits of reduced risk   

Since Proparco does not have local currency deposits, it would normally be required to undertake a foreign exchange cross-currency swap. However, Standard Bank’s utilisation of the guarantee structure not only removed the need for a cross-currency swap but also meant that the quantum of the risk was significantly reduced as Proparco was able to structure the risk in local currency synthetically. The extended tenor of the project and the reduced risk costs will also see end users pay less per kilowatt hour for electricity than is currently paid by Namibian consumers.

“Standard Bank’s innovative use of local currency lending has broad implications for deepening African capital markets by developing new mechanisms to use African savings and capital to drive African growth. As a development finance institution active in Africa, Proparco is eager to duplicate this innovative structure in other suitable transactions that allow us to denominate and assume risk in local currency.” - Emmanuelle Matz, Head of Power and Infrastructure at Proparco. In addition to acting as sole lender, underwriter and co-mandated lead arranger alongside Proparco, Standard Bank will act as account and agent bank in Namibia for the duration of the project and manage all performance bonds associated with the structure. Standard Bank’s Global Market’s practice also structured the long-dated interest rate and currency hedges for the transaction.

Lighting the way forward in Africa   

This is the largest IPP project in Namibia, and the first large scale renewable project to reach financial close in the country. As one of the largest photovoltaic plants in Africa outside South Africa, the project is expected to increase Namibia’s generation capacity by 7%, producing 120 000 megawatt hours per annum for over 25 years. This will reduce Namibia’s dependence on regional power imports, and support the annual electricity needs of more than 70 000 Namibians. As a leading investor in clean energy projects, we are proud to have structured a deal that not only holds the potential to deepen Africa’s domestic capital markets but will also contribute towards Namibia’s vision to become a self-sufficient solar power generator.