Temasek Nigeria Deal Shows Interest in Faster-Growing Africa

Apr 15, 2014 8:50 pm ET

April 16 (Bloomberg) -- The second major acquisition in Africa by Temasek Holdings Pte or one of its units in six months shows the growing interest in a continent where many countries are expanding faster then developed markets.

Singapore’s state-owned investment company will buy a stake in Seven Energy International Ltd. for $150 million, the Nigerian closely-held energy company said in a statement April 14. That follows an announcement in November of a $1.3 billion investment in three gas blocks offshore Tanzania by Temasek’s liquefied natural gas unit Pavilion Energy Pte.

“It ticks all the right Temasek boxes as it is an investment in a fast-growing emerging economy and it is an investment in resources,” said Song Seng Wun, a Singapore-based economist at CIMB Group Holdings Bhd. “They are slowly getting more comfortable with the region.”

Temasek joins other investors including Carlyle Group LP and Robert Diamond’s Atlas Mara Co-Nvest Ltd. that are seeking to profit from the continent’s development. Nigeria has the potential to be one of the top 15 economies in the world by 2050, fueled by its population, which would account for about a fifth of Africa’s people by then, Jim O’Neill, a former chairman of Goldman Sachs Asset Management, wrote in a Bloomberg View column April 6.

“We are interested in investment opportunities in Africa where they fit our investment themes; in particular, around the transformation of economies and the demand for consumption by growing populations,” Temasek spokesman Stephen Forshaw said.

The International Monetary Fund forecast this month economic growth in sub-Saharan Africa will accelerate to 5.4 percent this year from 4.9 percent in 2013. It also forecast growth in Nigeria would rise to 7.1 percent from 6.3 percent.

Bomb Attack

Ahead of the most recent investments in Africa, Temasek’s assets in the continent, central Asia and the Middle East accounted for just 2 percent of its total holdings as of March 31, 2013, according to its latest annual report published in July. That’s on a par with investments in Latin America and compares to 13 percent in Australia and New Zealand, and 12 percent in North America and Europe.

Investing as little as $150 million in a Nigerian company makes sense because the country is still politically unstable, Song said.

At least 75 people were killed April 14 in the worst-ever bomb attack on Nigeria’s capital Abuja, which the country’s President Goodluck Jonathan blamed on Islamist militant group Boko Haram.

Security forces are fighting a four-year-old insurgency by Boko Haram, which has killed thousands of people in gun and bomb attacks in the country’s north and Abuja. With less than a year before general elections, the government is increasingly stretched in its efforts to quell violence across huge swathes of the West African nation.

Frontier Market

“One has to have a very high-risk appetite to invest in a failed state like Nigeria,” Friedrich Wu, an adjunct associate professor at Nanyang Technological University in Singapore said in an e-mail. “After the BRIC economies, investors are chasing the next frontier markets to pour their money in. Africa has been talked up by various analysts and the media, but it could turn out to be a nightmare or quagmire.”

Founded in 2004, Seven Energy focuses on the emerging Nigerian domestic gas market, according to the statement.

Apart from Temasek, International Finance Corp., a unit of the World Bank, will invest $75 million and the IFC African, Latin American and Caribbean Fund $30 million, Seven Energy said.

Robert Diamond’s Atlas Mara on April 6 said it was buying a stake in state-owned Development Bank of Rwanda after previously agreeing to acquire Gaborone, Botswana-based financial services company BancABC for as much as $265 million.

The city-state’s investment firm in August 2011 said its unit, Sennett Investments Ltd., and E. Oppenheimer & Son, the investment holding company of the Oppenheimer family, would form an Africa-focused private equity joint venture that would primarily buy stakes in African consumer and agricultural businesses.