BluePeak founder Walid Cherif on bespoke debt financing, ESG focus and more

 BluePeak founder Walid Cherif on bespoke debt financing, ESG focus and more

Walid Cherif, BluePeak founder and managing director

Africa-focussed alternative asset management firm BluePeak Private Capital, founded in 2019 by three former Gulf Capital executives, recently hit the first close of its $200 million maiden credit fund.

The fund has been backed by at least three marquee development finance institutions—the Dutch development bank FMO, CDC Group Plc of the UK, and the US International Development Finance Corp (DFC)—as well as the Tunisian sovereign wealth fund and the European Investment Bank. Now, BluePeak expects to hit the final close by June next year. Meanwhile, the bespoke financier has already made the debut investment from its credit fund.

To talk about BluePeak’s plans and the alternative investment climate in Africa, The Capital Quest caught up with the firm’s co-founder Walid Cherif for a freewheeling interview. Edited excerpts:

How did BluePeak Private Capital start in 2019? What need gap were you trying to fill?

BluePeak Private Capital was started by me and two other partners—Adam Hadidi and Rami Matar. We used to work at Gulf Capital in Dubai for a number of years. I headed a team of 15 people and we raised two funds there between 2011 and 2018, focussed on the Middle East and North Africa (MENA) region.

The three of us decided to set up BluePeak in 2019. We basically wanted to do the same thing, but this time, focus primarily on Africa. We have offices in Tunis and London and a presence in Lagos. Very soon, by September, we will have a presence in Nairobi, Kenya, to cover East Africa. So, that’s the extent of our geographical footprint.

You have started raising your first fund. Could you talk a bit more about that?

We have started raising a $200-million fund. We have raised a part of that. The fund will fill the gap to provide much needed financing for SMEs (small and medium enterprises) in Africa, because Africa requires capital for those companies to grow.

The capital that is available today tends to be very restrictive, very limiting. A lot of private equity is available but a lot of these companies do not want to dilute themselves and sell a stake in their business. They want capital that is flexible to grow.

Why bespoke financing though? Was it primarily because of the reluctance of African companies to take private equity money? How big is the debt financing market in the countries that you are targeting?

The World Bank has said that Africa needs more than $5 trillion in capital in the next decade. I think Africa needs much more than that. A significant proportion of that would be for SMEs, which will be the engine of growth for these economies.

Today, the SMEs don’t have a lot of options to get capital from. The local banks tend to focus on blue-chip companies, the larger clients. They do a lot of sovereign financing as well, they finance states. They like to do a lot of asset-backed financing. But SMEs that are not big enough for those banks or do not have the assets that the banks need, have a challenge raising capital. They need to finance their working capital, their acquisitions and so on.

These SMEs have very few options. One is private equity money, which is available but in many cases their valuation expectations do not match. Private equity wants to invest at a set valuation and the owners expect higher value for their business.

This phenomenon has been exacerbated especially with the coronavirus pandemic. Businesses struggled throughout 2020 and continue to struggle in 2021. So, private equity funds do not see the performance and they are worried about the return. They don’t want to give the value they would have paid in 2019.

A big proportion of our pipeline over the last six months has been linked to this phenomenon.

Our financing is longer term, structured and flexible. We call ourselves solution providers. We don’t have set terms or a structure that we work with. We sit with the companies and come up with the financing needs in line with the future cash flows.

So basically, you hand-hold promoters of companies?

Absolutely, we do that and at the same time since we have a contract for five-seven years, we require these companies to adhere to a number of standards like environment and social standards that they have to comply with, whether its governance or impact areas. We do a lot of due diligence and help them in the journey to achieve these goals that we set together.

For that, we usually have a core team and committees. So, we get involved as much as private equity does but we don’t dilute the owner’s stake.

How much money have you deployed so far and how much dry powder are you currently sitting on?

We haven’t deployed anything. We are gearing up to announce our first transaction, hopefully be September. We are finalising our terms. We believe by the end of the year we will have at least two investments. About 35-40% of the capital we have raised will be already deployed before the end of the year.

Which countries do you focus specifically on in Africa?

Our focus is the entire African continent. We are primarily focussed on north, east and west Africa and we can also do stuff in the southern African countries. We are looking at Mozambique and Zambia, for instance.

Currently, we cannot do anything outside Africa. We have an option of deploying up to 20% of the fund in Turkey, Lebanon, Jordan and the Levant region. But beyond that we cannot do anything for this fund. Hopefully in future, if this is successful, we can look at other areas.

Do you have an investment philosophy?

Look, our investment philosophy is very simple. We help companies with flexible capital. We focus on cash flows. Companies who adhere to our strict ESG standards and companies who want to [make an] impact and do good to their communities. These are the three pillars.

Obviously, we want to protect our downside, because we want our investors to get decent returns. But at the same time, we want to have an alignment of interest between ourselves and the owners of the companies. So, we structure a piece of our investment as equity that will help us and the founders with the same objective.

Your website talks about an impact data tracking system. How does that work? Also, why do you have an ESG focus? Is there an LP mandate for that?

There is a clear distinction between ESG and the impact investing focus. The ESG framework has been developed with the LPs based on international standards. ESG is extremely important because we need to minimise risk. We take those standards seriously and assess companies from the ESG point of view. We devise an action plan and ask them to make changes wherever it is found lacking.

The impact bit is not about risk mitigation, but about how can you do good to your community. If, say there is a primary school, how can you do good. So, we thought about developing a scientific methodology. One of the sustainable goals is gender equality. We set up certain goals and we track it periodically and see if the goals are met.

What kind of companies you are likely to invest in?

We have about 17 companies in the pipeline at different stages, some more advanced than others. Among the ones that are advanced, we have one in the manufacturing space in north Africa and one in east Africa. We are also looking at logistics and warehousing companies.

In west Africa we are looking at companies in the healthcare space and insurance business. So, companies in the manufacturing, insurance, healthcare and logistics space, would be the most advanced.

What are your IRR expectations at a portfolio level?

In general, we look at 15-20% returns in IRR terms. That is composed of many elements—interest, upside on account of income participation, equity participation etc. It is really a mix of different elements.

How have the companies that you intend to back been impacted by the coronavirus pandemic? Has that changed your investment plan, strategy and return expectation over time?

The short answer is yes there has been a big impact. The impact is a reduction in revenues from anywhere between 20% and 40% or even higher. For sure, businesses have been impacted either because of lockdowns or because they were not able to source raw materials as their banks became very reluctant to provide working capital or because employees were not allowed to go to factories or had to work on reduced wages.

But since we invest for five-seven years, the impact will be minimum. Only the strongest companies will survive.

Aman Malik

The Capital Quest