The Safal Group proposed to partly fund its proposed new product line in Tanzania by local currency bonds, but needed credit enhancement to be able to access the local capital market. GuarantCo and IFC’s guarantee, covering 75% of the bond amount, was critical for Safal to begin the process of issuing the bonds.
The guarantee was agreed by IFC and GuarantCo in 2007 but was not in the end required as Alaf eventually managed to access the bond market without credit enhancement in 2009. However, the availability of the guarantee played an important role in catalysing the investment 2 years earlier than would have otherwise been possible as Safal was prepared to inject its equity portion up front knowing the debt portion was secure. It is a feature of GCo’s support that no early penalties are charged for cancellation, thus encouraging clients to graduate to purely commercial finance at the earliest opportunity.
The Safal group is one of the biggest producers of steel roofing in Africa, widely used in affordable housing. The proposed investment in their Tanzanian plant introduced new and more affordable product lines, besides improving quality of existing production, thus providing access to better quality housing products to low and middle income households.