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COVID-19 Energy Access Relief Response

The COVID-19 Energy Access response aims to maintain the sector’s progress in bringing energy to all.

In the last decade, energy access firms have made remarkable progress in mitigating climate change and reaching people, businesses and social institutions with low carbon energy, especially those who are operating out of sub-Saharan Africa and many parts of Asia. But, that progress is now hindered and could possibly be reversed because of COVID-19 related disruptions. As a result, it has become evident that companies are facing problems because of many challenges related to reduced sales and collections, disrupted supply chains, limited cash reserves, and tightening funding resources.

Energy Access Relief Fund

The Energy Access Relief Fund (EARF) has been designed to provide up to 4-year tenure, subordinated, unsecured, low-cost, subsidized loans to viable companies that are facing liquidity challenges due to COVID-19. The fund intends to focus on the smaller to mid- sized energy access companies that are addressing the needs of the bottom of the pyramid consumers and expects to make about 90-100 loans. While the fund will seek to be as inclusive as possible, its primary focus is expected to be on loans of less than $1M, within a range of $100K to $2.5M.

Energy Access Relief Fund partners and capital providers continue to work toward a first close.

 

In advance of first closing of the fund with the support of several key donors, SIMA is currently putting in place a mechanism that we hope will allow us to start lending to smaller companies in advance of the first closing.

SIMA has been selected as the sole Fund Manager for the EARF.

Process

PHASE I:

In terms of the process, companies will be evaluated against the eligibility criteria for borrowing, which are listed below. Companies will be required to meet all the primary criteria and some of the secondary criteria.

For the evaluation process, EARF defines smaller companies as those with annual revenues greater than $75K but less than $500K and larger companies with annual revenues greater than $500K but less than $50M.

In order to qualify, companies must meet all of the primary criteria.

PRIMARY CRITERIA

a) Last pre-COVID fiscal year’s proportion of revenues from Energy Access Activities >=50%
b) Last pre-COVID fiscal year’s annual revenues should be between US$75K and US$50 Million (both inclusive)
c) Months of operations should be minimum of 24 months through end of August 2020
d) (Total Equity) / (Total Assets) as of end of March 2020 >= 20%
e) Availability of unqualified audit opinion or a credible reference from either vendors, suppliers, institutional equity or debt investors, or institutional grant providers.
f) Operating in Africa or Asia.

Among the secondary criteria, smaller companies must meet at least three criteria while larger companies must meet at least four criteria.

SECONDARY CRITERIA:

a) Average of last two pre-COVID fiscal years’ revenue growth >= 5% (for smaller) and 10% (for larger companies)
b) Management’s local market experience >= 18 months (for smaller) and 30 months (for larger companies)
c) The company should be women owned and/or managed
d) The company should service low income customers
e) (Cash balance as of end of Sep 2020) / (Last two month’s Operating expense) >= 100% (for smaller) and 125% (for larger companies)
f) Actual collections from customers / Scheduled collections >=65% (for the period July 2019 to Dec 2019)

Companies that are interested are encouraged to submit an expression of interest (EOI) as soon as possible but no later than Tuesday, November 17, 2020, end of day EST at the link below. Submissions will be reviewed on a rolling basis as they come in.

Disclaimers:

1- Probability of Fund Closure:

SIMA (the Fund Manager) and the prospective Energy Access Relief Fund investors are working hard to successfully launch the Fund, however, there is some uncertainty that still exists as to whether or not the Fund will close at any size, on any timing or at all.

2- No Guarantee of Loan:

While the Energy Access Relief Fund has been accepting expressions of interest (EOIs) from prospective borrowers, an EOI does not guarantee that the Fund will provide a loan after the Fund closure. The ultimate recipients will be determined by the Investment Committee based on meeting eligibility and underwriting criteria, including the size of the business, viability of the business, performance of the business pre-COVID, impact created by the company, and finally, the availability of Fund’s capital, and lending will be subject to the absence of regulatory constraints, timely completion final documentation, and timely satisfaction of conditions precedent, among other factors.

3- Transparency:

The Energy Access Relief Fund is publicly providing eligibility criteria and key underwriting guidelines to reach a broad range of prospective borrowers. The Fund is guided by a steering committee that helps shape the Fund’s strategy to achieve the Fund’s objective of providing energy access relief during these unprecedented times. Moreover, the Fund will have 7-8 member investment committee, who will evaluate all qualified borrowers on the basis of merit while meeting the Fund’s objectives.

PHASE II:

Companies qualified in Phase I will be invited to submit more detailed company related information in the Odyssey Platform. Odyssey, the Energy Access Relief Fund technology partner, will automate the information gathering and analysis.

Once companies submit the additional information in the Odyssey platform, it will be analyzed by SIMA, and assigned to a relationship manager, who will start the underwriting process. Please be reminded that a prompt, accurate, well-organized and complete response will enhance the credit evaluation process.

The key underwriting criteria approved by the Energy Access Relief Fund’s steering committee include:

Area Sample Key Metrics / Indicators
Financial Performance ⦁ Sustained historical revenue growth over 5%
⦁ Higher operating margin potential over 25% and/or Opex / Revenue < 150%
⦁ EBITDA positive or projected to break-even within next 3-5 years
Asset Quality ⦁ PAR >90 days less than 10%
⦁ For Non-PAYG companies, average receivable days less than 120 days
⦁ Limited historical write-offs
Product Quality & Customer Protection ⦁ Satisfactory and compliant with technical standards
⦁ Effective customer protection policies
Liquidity and COVID Impact ⦁ Noticeable impact of COVID related disruptions either in collections, growth, liquidity or working capital
Capitalization ⦁ Leverage <= 4x
Management ⦁ Highly capable team and good corporate governance

Qualified borrowers will be presented to the Energy Access Relief Fund’s Investment Committee, which is expected to be comprised of 3 SIMA
members and 4-5 independent investment committee members, who have SME lending and energy access sector expertise, for final approval. All the loans approved by the Investment Committee will be offered a loan from the Energy Access Relief Fund.

Please refer to the FAQ below for further information. For unanswered questions, please write to earf@simafunds.com.

Frequently Asked Questions

Q1. What is the certainty about the Energy Access Relief Fund’s successful closure?

SIMA (the Fund Manager) and the prospective Energy Access Relief Fund (EARF) investors are working hard to successfully launch the Fund; however, there is some uncertainty that still exists as to whether or not the Fund will close at any size, on any timing or at all.

 

Q2. When will the disbursements under the EARF start?

EARF partners and capital providers continue to work toward a first close. In advance of first closing of the fund with the support of several key donors, SIMA is currently putting in place a mechanism that we hope will allow us to start lending to smaller companies in advance of the first closing.

 

Q3.  What will be the structure of the loans under EARF?

The loans would be in the form of unsecured, subordinated debt with a maximum tenor of 4 years.

 

Q4. Does the EARF provide a grant?

The EARF does not provide any grants. The fund provides only concessionary, subordinated, longer tenure and unsecured loans.

 

Q5: What is the purpose of the loans and are there any restrictions in them?

The loans will be provided for liquidity purposes to financially viable companies; however, they cannot be used to repay existing debt. The funds are largely expected to support the normal operations of the business.

 

Q6. What all geographies will the financial support be provided under the EARF?
The EARF will provide concessionary debt to energy access companies in Sub-Saharan Africa and Asia.

 

Q7. What will be the interest rate that will be charged on the loans provided under EARF?

The funding under EARF will carry a subsidized USD interest rate. The smaller companies will get a favorable interest at the lower end of the range.

 

Q8. What will be the tenor of the financial assistance provided under EARF?

The loans will be provided with a fixed tenor of up to 4 years.

 

Q9. How transparent is the selection process?

There are two elements in the selection criteria. First, the borrowers will be screened on the basis of some eligibility criteria, which have been provided. The second step involves obtaining detailed information from the prospective borrowers on management, financial information, asset quality etc., which will be used for underwriting purposes. Finally, a proposal for qualifying institutions will be presented to the Fund’s Investment Committee, made up of 3 SIMA team members and 4-5 independent members, who will make a final investment decision.

 

Q10. In which currency will the loans be disbursed in?

The loans will be disbursed both in USD and local currency terms. We will try to disburse the loans in local currency wherever possible to hedge the transaction. USD loans could also be made for the purchase of inventory.

 

Q11. Will there be any other assistance provided along with financial support?

We are working with GET.invest to provide assistance to smaller companies.

 

Q12. Who should I connect with if I have more queries?

You can email earf@simafunds.com for your unanswered queries regarding the Fund. You can email support@odysseyenergysolutions.com for platform-related queries.

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