Blackstone, Carlyle Join Africa’s Dangote for Investment

Blackstone Group LP and Carlyle Group LP, the world’s two biggest private-equity firms, sought a partner in Africa to invest in the continent’s burdened energy infrastructure. They both found him in Aliko Dangote, Africa’s wealthiest man.

“Africa needs that kind of funding,” Dangote said in an Aug. 2 telephone interview from Lagos, Nigeria. “We will do whatever it takes to make people realize that it is happening.”

Dangote, whose cement and commodities businesses built him a $24.4 billion fortune, said he struck separate agreements with the private-equity firms, attracting new capital to help address Africa’s energy demands. He committed to invest a combined $5 billion by 2019 with New York-based Blackstone in power projects in sub-Saharan Africa, and he formed a joint venture with Washington-based Carlyle to invest an unspecified amount in Nigerian oil and gas ventures and other sub-Saharan projects.

African nations have a funding shortfall of $50 billion a year that’s needed to ease energy shortages and transportation bottlenecks, according to the World Bank. As a result, sub-Saharan Africa experiences regular blackouts or faces energy prices that are too high, with 600 million people, or 70 percent of the population, lacking electricity, according to the International Energy Agency. Since the mid-1990s, financing for African power projects has averaged about $1.2 billion a year, split between public and private money, the World Bank says.

‘Biggest Inhibition’

“It’s probably the biggest inhibition to economic growth in Africa,” Steve Schwarzman, Blackstone’s chief executive officer, said of the lack of electricity in a telephone interview. “We can change people’s way of life, increase economic growth, and I think we’ll do very well for our investors too.”

Blackstone will commit half of the $5 billion in the next five years, with the remaining $2.5 billion coming from Dangote Industries Ltd., Schwarzman said. The money will come from Blackstone’s main buyout fund, called Blackstone Capital Partners, and its chief energy pool, Blackstone Energy Partners.

Schwarzman said he expects returns from the Dangote venture to be in line with those produced by leveraged buyouts. Blackstone’s private-equity funds produced internal rates of return after fees of 16 percent as of June 30.

“It is a place where people make good money,” Dangote said of sub-Saharan Africa. “But even with good money, there comes some good headache.”

Dangote, who has experienced those headaches while building his industrial empire, said doing business in Africa is getting easier as governmental practices become more predictable and policies are friendlier to outsiders. Still, Blackstone and Carlyle sought him as a partner based on the continent to ease the investment process, he said.

‘Local Partner’

“They want to invest heavily,” Dangote said. “They couldn’t really find a local partner to work with. You are not going to move down here and sit here and make sure it is done, because you are doing business all over the world,” he said of the firms.

Dangote Industries and Blackstone will search for projects through Black Rhino Group, an African infrastructure developer in which Blackstone invested, according to Sean Klimczak, a partner in Blackstone’s private-equity business. The team, which Blackstone will help build, will be based in Johannesburg and Senegal’s capital, Dakar, Klimczak said in an interview.

Blackstone has done $25 billion globally in deals known as greenfield, in which it constructs operational facilities, according to Klimczak. Those investments include the firm’s stake in the Bujagali hydropower plant on the Nile River, which Blackstone says cut the cost of power for Uganda’s national utility by two-thirds, and the firm’s stake in Kosmos Energy Ltd., which developed a deep-water oil field off the coast of Ghana.

Carlyle Fund

Carlyle, which this year raised $698 million for its first sub-Saharan Africa fund, counts Dangote among its limited partners. The billionaire told Carlyle when it was raising the fund that he would match the firm’s own 10 percent commitment to the pool. The fund has done three deals, taking a stake in Tanzanian agricultural commodity business Export Trading Group in 2012, investing in Mozambique-based logistics company J&J Africa earlier this year, and helping buy commodities trader Traxys SA in a transaction closing this quarter.

Africa, cited by the White House as home to six of the 10 fastest-growing economies, is ripe for expansion, Susan Rice, the U.S. national security adviser, said in an interview with Bloomberg News.

‘New Model’

“A relative little goes a long way if it’s well targeted and well framed and if you leverage the private sector and foundations and civil society,” Rice said. “That’s a new model of development.”

The World Bank projects a 5.2 percent growth rate for sub-Saharan Africa this year, driven by strong household spending and rising investment in natural resources and infrastructure. Last month, the BRICS group of nations -- Brazil, Russia, India, China and South Africa -- agreed to create a $50 billion development bank to fund projects and serve as an alternative source of finance from the World Bank.

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