TLG Capital has a record of exiting deals in some of Africa’s most difficult circumstances. Isha Doshi, Partner and Chief Financial Officer at TLG, narrates its journey in Africa, including treading through a tricky situation in Ghana. TLG has consistently won the Credit Investor of the Year accolade at the Private Equity Africa Awards.
TLG has actively funded small-cap deals across sub-Saharan Africa through private credit structures since 2014. Over this time, multiple scenarios have played out, both in our investee companies as well as across the broader pan-African macro- and geopolitical environment.
The coronavirus disease (COVID-19) shutdowns imposed by numerous governments across the continent led to business losses and economic strife across most of the economies we invest in. This was further exacerbated by the Ukraine war, the breakdown of supply chains, and subsequent global inflation and rate rises.
For instance, our women and children’s clinic in Liberia, Snapper Hill Clinic, a country where roughly a third of all people live below the poverty line, has in recent times successfully navigated the COVID-19 challenges. This came after an Ebola crisis between 2014 and 2015.
In Ghana, inflationary woes have been raging. The country has been gripped by soaring inflation, with its currency having depreciated by approximately 50% between 2022 and 2023. This has resulted in the country defaulting on some of its debt payments and receiving bailouts from the International Monetary Fund – its 17th so far.
Meanwhile, Nigeria has just seen its complex dual exchange rate system axed alongside the fuel subsidy, both seen as positive for the economy overall but painful in the short term. All the while, a coup in Niger, internet censorship, and an opposition leader being jailed in Senegal have added to the continent’s woes. The TLG team is closely monitoring these challenges due to its exposure to these countries within our portfolio.
Navigating complexities
These scenarios – depreciating currencies, poverty, and general macroeconomic volatility – are made even more complex for investors due to the nascent nature of the exit market in sub-Saharan Africa. A lack of liquidity means that exiting private equity minority stakes through trade sales is often impossible, as buyers simply do not exist.
Additionally, weak legal systems, as well as thinly traded local exchanges, make investing in the continent a difficult proposition. It is for this reason that development financiers, with their mandate to invest in these nuanced and difficult markets, are much needed.
Despite all of the above, there is much opportunity on the continent. By the year 2050, approximately 25% of the global population will be from Africa. And by 2040, Africa will be home to the world’s largest working-age population. Abundant natural resources, steady productivity growth within the agricultural sector, and a swelling consumer class give much to hope for.
Without African investment experience and, more importantly, flexibility of mandate in terms of how deals are structured – investment opportunities often lie dormant and inaccessible.
No deal has had to be written off at TLG to date, and we have returned significantly above-market returns to our limited partner (LP) base, which includes Sweden’s Swedfund, and a network of family offices across Asia, Europe, and the US. We have had a strategy to use self-liquidating private credit deal structures with strong layers of well-structured downside protection. These, with equity warrants that ensure strong upsides, have created for us a strong, sustainable track record.
Rescuing a deal gone wrong
A good example of our smart structuring is one of our deals in Ghana, where we executed a successful exit despite everything going wrong. In 2014, TLG invested in a play on indigenous telecoms in Ghana, Broadband Home (BBH). At the time, the government had issued 4G licences only to local players, setting the stage for smaller companies to become competitive in telecom provisioning.
The entrepreneur we backed was talented, the regulatory environment was favourable, and the deal was secure – and was underpinned by both the 4G licence and a bank guarantee. Fast forward to 2018, everything that could go wrong went gone wrong.
The Ghanaian government, seeking additional revenue, had begun to sell more 4G licences, this time to larger players, thus reducing BBH’s competitiveness. This morphed into the company defaulting on its debt.
At the same time, the 2017 Ghanaian banking crisis had resulted in the bank that had provided the BBH guarantee going into receivership, despite having a strong shareholder base, including several notable development financiers. Despite all this, TLG’s carefully structured loan agreements paid off. TLG won court judgements in Ghana and the UK in its favour and then worked with the company’s chief executive officer to sell its licence, finally achieving a sale in 2023.
Forging forward
Most of our deals are more straightforward, but each deal is structured to assume that unforeseen things will go wrong and therefore includes mechanisms to ultimately exit regardless. Patience, grit, and, importantly, a team of excellent legal structurers mean that for TLG, senior structured debt denominated in the US dollar remains the most compelling asset class in Africa. This is even relative to global benchmarks.
Each member of the TLG team wants to make a difference by investing in healthcare, financial institutions, and consumer goods and services in some of the poorest and in some of the globe’s trickiest markets.
We continue to believe that the best way to attract more much-needed capital to the continent is to show our global audience of investors that the African growth story is impactful not only from a social perspective but, more importantly, from a commercial one as well.
