GAIA Impact Fund & Solaris Offgrid to conclude the first foreign direct credit facility of 500k€
Solaris Offgrid has been operating its wholly owned last mile operation in Tanzania since late 2015 (trading locally as Solaris Tanzania), steadily investing in its capacity to originate, manage, and support SHS installations built upon its proprietary hardware systems and Solaris PAYG platform.
For its 2018 expansion plans, Solaris Tanzania (the branch of Solaris Offgrid) had been looking at bringing in credit partners to help fund the demand for its PAYG solar systems in the Tanzania lake region. “Our business has been steadily growing, and we had understood that for 2018 that it would be essential to add credit capacity to meet demand” says Siten Mandalia, CEO of Solaris Offgrid.
Conventional credit loans to PAYG SHS companies involved in last-mile operations have been general business loans. Creditors extend a loan to a last-mile PAYG company to help expand its business, which includes originating, funding, and managing systems’ leases. The last-mile PAYG company then reports quarterly business performance and the underwriter tries to measure and reconcile the actual performance--lease health, credit scoring, social impact, repayment capacity--implicitly based upon summarised quarterly information. “The more we looked at how most commercial underwriting is still done for systems’ leases, we found that underwriters are not really satisfied with this kind of arrangement as it groups together multiple pools of business risks and makes it difficult for a lender to measure and track factors contributing to success - driving up costs for both lenders and borrowers” says Craig Harris, CFO of Solaris Offgrid.
A common aim of last-mile PAYG SHS companies to try to separate the lease risks from those of the general business (i.e. R&D, marketing, manufacturing, service delivery, etc) is to initiate and grow an SHS lease portfolio, and then sequester the portfolio as a securitised asset in a separate SPV, which is then used as collateral for an offsetting loan. The model widely used to finance a wide range of assets in other industries also holds promise for the PAYG SHS industry as it scales. However, the practice is not without risks, especially considering the maturity of the underlying asset class. For both parties - the credit origination, underwriting, and strategic goals of the portfolio have already been fixed by the last-mile PAYG SHS company - the credit underwriter risks ending up being a passive investor. “While SPV’s have attractive counterparty risk-mitigating attributes and provide liquidity for large pools of SHS assets, they can also end up being opaque, complicated and expensive; particularly for relatively small transactions. Our investment objectives were to provide a streamlined financing instrument that was flexible and could be implemented efficiently” says Guilhem Dupuy, Investment Manager at Gaia Impact Fund. President and Founder of GAIA Impact Fund, Hélène Demaegdt adds, “We are very proud to have co-built a cost-efficient, tailor-made solution fitting perfectly with Solaris Offgrid’s financing needs. This is exactly the idea of what our working partnerships are about.”
Solaris Offgrid and Gaia Impact Fund have partnered together to fund the creation of a custom portfolio of SHS leases using the