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The pan-African ambitions of SouthBridge investment bank

By Olivier Holmey
Posted on Thursday, 25 February 2021 20:05

Donald Kaberuka and Lionel Zinsou, the two founders of the investment bank with pan-African ambitions. © Eric Larrayadieu for JA; Vincent Fournier / JA

Thanks to the interpersonal skills of its influential founders, Donald Kaberuka and Lionel Zinsou, SouthBridge has established itself on the African continent's financial scene. But can it catch up to its many competitors?

The first stone of what would become SouthBridge was laid in Cotonou in August 2015. Donald Kaberuka, the outgoing president of the African Development Bank (AfDB), was in town for a final official meeting with Beninese President Thomas Boni Yayi, as part of his farewell tour.

He took the opportunity to have lunch with Lionel Zinsou, an old acquaintance. The latter, who had been Benin’s prime minister for only two months, planned to leave politics as soon as the next elections were held.

Zinsou confided in him: “From April 2016, I will devote myself to what I have wanted to devote myself to for years.” The former partner at Rothschild and CEO of the French private equity firm PAI wanted to dedicate the rest of his career to providing financial advice and investing in Africa. Kaberuka, who was Rwanda’s finance minister for eight years, shared this desire. The two men agreed to found a new pan-African investment bank.

Zinsou eventually ran for the March 2016 presidential election, but lost. Defeated by the Independent candidate Patrice Talon, he then devoted the following year to creating the start-up.

A voluminous address book and immediate visibility

The name “Kaberuka Zinsou Bank” was quickly discarded as they wanted to create an institution that would survive them. In the end, they chose “SouthBridge” as their business would mostly take place in the southern hemisphere and focus on integrating African economies.

They picked an English name as they hoped to do business all over the continent. A dozen or so people close to the company – entrepreneurs from East and West Africa – invested their capital into a modest fund-raising campaign.

The company got off to a flying start. Even before it was formally incorporated or had its own premises, SouthBridge got its first job: advising the French hotel group Accor on the creation of a $500m African fund. But how would they go about establishing a lasting presence in a sector where competition is fierce and contracts are rare?

In any case, Zinsou and Kaberuka’s address book gave SouthBridge immediate visibility. “When you are an AfDB president, you know everyone across the continent. This was also the case in French-speaking Africa,” Zinsou told us during a videoconference interview at the end of last year from his Parisian flat.

Their first meetings were held with Patrice Talon, Denis Sassou Nguesso and Ali Bongo Ondimba. “We spoke with many presidents and finance ministers to get a picture of how satisfied they were with the services they received,” recalls the former prime minister of Benin. They got the impression from these meetings that governments are tired of advisers “not necessarily all very high in the hierarchy, neither in experience, nor in age, who come from New York or London to spend a few hours on the spot,” and who “employ clichés about Africa,” said Zinsou. Message received. SouthBridge would need to offer a different kind of service than that experienced by these men.

“A humble, hard-working and slow job”

In any case, these summit meetings foreshadowed the kind of activity that SouthBridge would be engaged in. Fast forward to 2020 and the investment bank was supporting the implementation of the Djibouti Sovereign Fund, which aims to reach a size of €1.5bn within ten years.

In the same year, SouthBridge advised the Togolese government on two dossiers: the creation of a public-private partnership, backed by €200m of investment, with the Singaporean agro-industrial group Olam; and selling a majority stake in Togo’s New Cotton Company worth €15.3m to Olam. The Sovereign Council represents 60% of SouthBridge’s business, Zinsou tells us.

“They only make political deals”, says a competitor, for whom the founders’ contacts mask the operational teams’ lack of experience. “We are veterans of important functions, so we know the people. Yes, that helps,” says Zinsou. “But the public relations, social relations and address book are not the most important part. In reality, it’s a humble, hard-working and slow job.”

Varied and relentless continental competition

In December 2018, SouthBridge announced that it had recruited British-Nigerian Andrew Alli, a leading name in African finance. The man who had previously headed the multilateral financial institution Africa Finance Corporation for ten years stresses that SouthBridge is not just a sovereign board.

He cites, as an example, having the support of Kenya Commercial Bank during its takeover last November of two East African banks owned by Atlas Mara. He also rigorously defends the expertise of its staff, which includes former employees of Goldman Sachs and Deloitte.

SouthBridge has offices in Paris, Abidjan and Kigali, with plans to expand into London and Johannesburg. Alli is based in Lagos. By setting up offices in numerous locations, SouthBridge hopes to establish a pan-African presence.

But the competition is fierce, and especially so on the African continent. Lazard and Rothschild dominate the French-speaking market, while the international banks of Citi, Goldman Sachs, Standard Chartered and Standard Bank are well established in the English-speaking world. “We’re a small company compared to Lazard and Rothschild,” says William Ediko, a partner at SouthBridge.

Another challenge for SouthBridge is competing with smaller pan-African investment banks with a high level of expertise. These include Russia’s Renaissance Capital, France’s AM Capital and Egypt’s EFG Hermes Frontier as well as a host of national firms, including Capital Trust in Morocco and KeysFinance in Côte d’Ivoire.

Signing some thirty contracts, from telecoms to energy

Faced with this competition, SouthBridge – according to Zinsou – did not expect to win any contracts during its first three years of existence. In 2020, however, the investment bank had already signed some 30 contracts. “That’s a lot,” says Ali Khalpey, CEO of EFG Hermes Frontier. His investment bank, which was created shortly before SouthBridge and is present in Nairobi and Lagos, is currently working on half a dozen contracts, he told us.

SouthBridge’s rise seems all the more remarkable as they have signed 12 contracts since the arrival of the Covid-19 pandemic in Africa in February 2020. SouthBridge has worked, amongst other places, in Morocco, Senegal, Guinea, Mali, Côte d’Ivoire, Nigeria, Cameroon, DRC, Rwanda and Tanzania in the telecoms and energy sectors.

In addition to the continent’s governments and companies, the investment bank’s clients include several multilateral development banks including the West African Development Bank (BOAD) and the Trade and Development Bank (TDB), the Common Market for Eastern and Southern Africa’s development bank.

SouthBridge’s doctrine has, in part, enabled them to win a diverse range of contracts. “We’re prepared to help a government with a GDP of $2bn to $500bn and a company with a turnover of $30m to $30bn,” says Zinsou. The idea is to accompany the clients in their growth rather than limiting itself to the giants, as many international investment banks do. Private equity firm Development Partners International (DPI) has in any case been impressed by SouthBridge’s geographical footprint and is considering using its services.

“They may be able to meet the needs of investors like us who are looking to invest on a pan-African basis,” says Sofiane Lahmar, a partner at DPI. “It’s better to have a single entry point than to talk to 20 or so people in 20 major African countries. It would be a game-changer.”

Three investment vehicles to raise $600m

However, Zinsou acknowledges that SouthBridge’s hyperactivity poses planning and staffing problems, given its small size. Frannie Léautier, a partner at SouthBridge, confirms that the pace is very fast as she has worked on 10 contracts since last June.

The MIT graduate and World Bank veteran, who was in charge of asset management at TDB after a brief stint as vice-president of the African Development Bank, now chairs SouthBridge Investment: a new pan-African private equity and asset management firm that aims to complement SouthBridge’s services.

Three investment vehicles are being developed, targeting banking institutions, the industrial sector and SMEs managed by women. Ultimately, they are expected to raise a total of between $600 and $800m. However, the pandemic might slow down this momentum.

“Clearly, in the current context, raising funds in Africa is very difficult,” says a competing fund manager. However, Léautier assures that she has found investors ready to follow SouthBridge on these three vehicles. She also claims to be turning the crisis into an asset.  After all, some sectors managed to develop their activities during the pandemic and others will need capital to recover.

Disagreements and controversies in Abidjan and Casablanca

Other projects have been less successful. Serge Thiémélé, an Ivorian transaction advisory specialist and former senior executive of EY in French-speaking Africa, reportedly cancelled the planned merger between SouthBridge and his advisory firm First Capital, following disagreements over the business strategy and terms of the union.

Zinsou says he is disappointed. Serge Thiémélé, a former associate at SouthBridge, has since left investment banking and does not wish to comment on it. According to our information, he would have preferred to maintain his independence as well as his focus on Côte d’Ivoire, rather than immerse himself in SouthBridge’s pan-African project. However, First Capital will continue to work with SouthBridge on certain projects.

Another merger, between SouthBridge and A&I – a sister company in Morocco specialising in strategic consulting – is also still pending. SouthBridge A&I has been the subject of fierce controversy in the kingdom ever since they tried to obtain a contract from the Ministry of Tourism.

This was due to the fact that its founding partner Hassan Belkhayat and Lamia Boutaleb, the secretary of state for tourism, were both involved in the Rassemblement national des indépendants [National Rally of Independents] (RNI). Belkhayat’s colleagues explained to us that he kept his distance from this dossier and that the contract in question was never signed.

As for SouthBridge, they have given assurances that the merger with A&I will still take place, possibly this year. “There are no immediate plans to merge”, SouthBridge says, while noting that the two companies remain close.

Despite SouthBridge’s remarkable start in consulting activities, Zinsou wishes to keep a cool head: “We may have a very good year and nothing the following year.” One note of optimism, however, is that SouthBridge has already completed several contracts for certain clients. “In this business, where turnover is highly volatile, it’s the recurring clients that count,” concludes the managing partner.

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