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Soros-backed LeapFrog raising US$800m for Africa purchases

[JOHANESBOURG] LeapFrog Investments Ltd plans to raise US$800 million for its latest fund as the private-equity firm seeks stakes in African banks, insurance brokers and payment companies to tap into rising demand among low-income consumers.

Overseas Private Investment Corp, the Washington-based development financing unit of the US government, has approved an investment of as much as US$200 million in the fund, the buyout company's third, said Karima Olokun-Ola, a partner at LeapFrog in London. Billionaire George Soros invested in LeapFrog's first fund through his Soros Economic Development Fund because the financial-services market is under-served, she said.

LeapFrog is betting there's greater scope for investments among companies that target Africa's emerging consumers because there are more than four times as many the size of the continent's middle class. New regulations requiring insurance companies in Kenya to hold more cash will create buy-out opportunities, while the continent's largest population in Nigeria and more sophisticated consumers in Ghana make those markets attractive, Ms Olokun-Ola said.

"We are speaking to insurance companies, ones that are looking for capital and those ones with sufficient capital but are looking to take advantage of consolidation and grow market share" in Kenya, she said by phone from Nairobi last week. "We're looking at payment companies because it's becoming a popular tool that just offers much cheaper ways of doing business" across the continent.

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The company's previous fund, the $400 million LeapFrog Financial Inclusion Fund II, still has some money to spend, Ms Olokun-Ola said. It also has a US$350 million joint venture with Newark-based Prudential Financial Inc., which is focused on similar assets, she said. The company's first fund raised US$135 million.

Kenya has 49 insurers, five re-insurers and almost 200 brokers in a country where about 3 per cent of the population has cover, according to the Association of Kenya Insurers. The market is also overbanked, with 41 lenders serving 44 million people, creating opportunities for mergers and takeovers because of new interest-rate caps that are squeezing profit margins, according to Nairobi-based Cytonn Investments Management Ltd, which oversees US$716 million. Emerging consumers earn between US$2 and US$10 a day and make up about two-thirds of Africa's population of more than 1.2 billion people, while the continent's middle class is less than 15 per cent, she said.