With the key purpose of contributing to economic and social development, Denmark’s Investment Fund for Developing Countries (IFU) constantly seeks solid, far-sighted investment opportunities. The state-owned organisation provides risk capital and advice to companies establishing businesses in emerging economies, particularly in Africa, Asia, Latin America and parts of Europe. To date, IFU and its managed funds have co-invested in more than 1200 companies in 100 countries.


“We help to establish companies that provide a bottom line profit and have a positive effect for employees, partners and society,” says Rune Nørgaard, IFU Communications Director, adding, “At the same time, we are careful to invest only in companies that maintain high environmental, social and governance standards.”



Blended financing

Over the years, IFU has invested together with many Danish companies, of which FLSmidth is a noteworthy partner. The partnership between the two dates back to 1975, and since then, IFU and FLSmidth have teamed up in more than 20 cement projects worldwide. Most recently, IFU and FLSmidth have come together to help finance the expansion of Power Cement Ltd.’s operations in Nooriabad, Pakistan.


But IFU’s own funds make up only a part of the financing package. In what’s known as ‘blended financing’ – the strategic use of development finance and private funding to raise capital for projects in emerging markets and developing countries – equity has also been provided by an independent investment fund administered by IFU. This fund consists of equity from two Danish pension funds, PBU and PKA. Together with these partners, FLSmidth is providing approximately EUR 11 million in funding to the Power Cement project.



Building on a strong relationship

This is the fifth joint project in Pakistan, and sees the return of IFU to Pakistan after a five-year break. Anders Paludan-Müller, Investment Director at IFU, is convinced that the longstanding partnership between FLSmidth and IFU is one of the key reasons this project got off the ground. He comments:


“When we appraise project proposals, one of the most important factors is the project partner. FLSmidth is a trusted, reputable, and high-quality player in the cement production industry, so it’s a big plus they are involved."

FLSmidth is there to develop long-term relations with cement manufacturers. We’re there to help people with their livelihoods. It’s a partnership all the way around.

Rune NørgaardIFU Communications Director

Solid investment

Although IFU’s objectives are closely tied with contributing to a country’s Sustainable Development Goals (SDGs), there is no doubting in the importance of its commercial objectives as well. Investments are made on commercial terms in the form of equity and loans with the objective of a healthy return on its investments. However, IFU is willing to accept a greater risk than many other traditional financial institutions, and the Power Cement project does carry several risk factors, explains Anders Paludan-Müller:


“Pakistan’s country risk is considered high. This assessment is based on risks associated with personal safety, the political situation, instability in the business climate, and scarcity of transparency. It is a highly regulated economy with a lot of red tape and currency constraints.”


With risk comes opportunity. From an investment perspective, it was clearly an upside that the plant’s existing infrastructure could be transformed into a modern, profitable operation. But according to Anders Paludan-Müller, it also depends on having strong partners who are used to operating in such a climate:

We need to be able to trust our partners, and we carry out strict due diligence. Our evaluation of the owner of Power Cement, the Arif Habib Group revealed a solid track record in turning around underperforming enterprises as well as a strong management team who knows how to navigate within the local environment.

Anders Paludan MüllerInvestment Director at IFU

Mutual commitment

IFU expects the other financial partners to accept financial risk, too. This collective risk-sharing perspective is central to the way IFU operates. Anders Paludan-Müller says:


“It’s important we are aligned towards the customer as one party. Part of our model is that the partner assumes project risk, for example through a minority shareholding, which demonstrates a long-term commitment to the project. We have seen this commitment from FLSmidth many times before, and we see it again now with the Power Cement project.”


Among IFU’s demands when investing in these projects, is a seat on the Board of the business being supported. But rather than being a barrier, this was in fact welcomed by Power Cement’s owners, who were seeking the unique expertise and knowledge of IFU, according to Kashif Shah, Advisor to Arif Habib Group.


Anders Paludan-Müller, who will represent IFU and FLSmidth on Power Cement’s Board of Directors, explains that it is a part of the mutual commitment between IFU and the project owner:


“We want to have a finger on the pulse and to have some influence on the project. But it’s not just about control, it’s also because we have a lot of good advice to offer, based on our experience across 1200 investments. For the project owner, IFU provides a stamp of approval, particularly because we are backed by the Danish state. This carries an inherent credibility towards the project’s other stakeholders.”


It is all part of realising the objective of contributing to Pakistan’s development and delivering to IFU’s own investment goals.

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