Ethos Mezzanine Partners 3

Equity : June 2019

This fund provides mezzanine loans in USD to companies in Southern and Eastern Africa.

Amount

€ 8,868,980.00

Type of investment

Equity

Development impacts

Local economic growth
Private sector consolidation/innovation
Promotion of ESG best practices

Beneficiary locations

Sub-Saharan Africa: Burundi, Ethiopia, Kenya, Malawi, Mozambique, Rwanda, South Africa, Tanzania, Uganda, Zambia

Investment field

Investment Companies & Funds

Activity

SME fund

Organisation

Ethos Mezzanine Partners 3

Website

https://thoughtcapitaltest.co.za/ethos/funds/mezzanine-partners-3/

Domicile

South Africa

Ethos Mezzanine Partners (hereafter “EMP”), has raised its third closed-end mezzanine fund. The fund aims to provide mezzanine loans in USD to companies operating in Southern and Eastern Africa. The fund manager is a pioneer in mezzanine financing in South Africa and is eager to leverage its experience to expand across the Sub-Saharan African market (SSA), with a focus on Southern and East Africa.

Mezzanine

The fund will service the important market demand for flexible long-term financing that can address the shortcomings of financial instruments offered by both local banks and traditional private equity funds. Mezzanine is indeed an appealing source of financing for local entrepreneurs as bank loans are not available or adapted to their needs for growth capital and private equity comes with dilution of ownership and potential issues when the private equity investors need to exit. Mezzanine is also regarded as cheap equity by local entrepreneurs, since the required return for mezzanine financing is much lower than the return sought by private equity investors (who take more risk). From an investor perspective, mezzanine provides downside risk protection as it is a loan with a contracted repayment schedule, while the instrument offers the possibility of a higher return through a so-called equity kicker (a premium that is calculated on the basis of the value of the company).

Development impacts

Local economic growth
The fund will provide mezzanine financing to SME. These instruments typically have a longer tenor (3/7 years), with a bullet repayment at maturity date, and are flexible (fund manager is willing to restructure in case of need). This type of financing provides the borrower with the necessary oxygen to invest in and execute growth plans.
Private sector consolidation/innovation
Mezzanine is rather a niche financial instrument although very relevant for SME with growth ambitions as it allows them to have long term funding without having to dilute their ownership. A lot of SME are not attractive enough for private equity investment but are solid businesses with growth perspectives, hence able to commit to long term debt obligations.
Promotion of ESG best practices
The fund manager is trained, organized and dedicated to integrate ESG best practices in its investment approach. DFIs that first joined as investors have supported the fund manager in structuring its activities so that ESG best practices are promoted to an optimal extent.

Made possible through this investment

Thanks to the direct funding from BIO, the following second-line investments have been made possible.

Turaco

Ethiopia

Turaco is the holding company of Health Care Foods Manufacturers (HCFM), Gullele Soap Factory and ZAK Manufacturing and Trading (ZAK-Gullele). HCFM and ZAK–Gullele manufacture edible cooking oil and soaps/detergents in Ethiopia.