2016 Cross-border financing report: Tanzania

Author: | Published: 26 Sep 2016
Email a friend

Please enter a maximum of 5 recipients. Use ; to separate more than one email address.

www.yakubuchambers.com

Section 1: BANK LICENCES

1.1 What licences or approvals do lenders need to have if lending to a borrower in this jurisdiction if a) the lender is a bank or b) the lender is a not a bank?

a) Banks must be licensed by the Bank of Tanzania (BOT) as set out in the Banking and Financial Institutions Act 2006 and the Banking and Financial Institutions (licensing) Regulations 2008. Foreign banks operating outside Tanzania do not require licensing from the BOT and may lend to borrowers in Tanzania.

Foreign banks lending to borrowers in Tanzania should ensure that local borrowers are aware of the requirements in the foreign exchange circular no. 6000. This sets out the conditions to be fulfilled by approving banks in Tanzania for foreign loans whose tenure exceeds 365 days. One of the key conditions is the requirement to submit the loan agreement and disbursement and debt-servicing schedule to the BOT. The approving bank should submit these documents at least 14 days after approving the loan. The BOT then issues a debt record number (DRN) to the borrower.

Although this circular is meant to apply to loans with a tenure of 365 days or more, in reality, all foreign loans must be registered as the DRN is required for the externalisation of funds. That said, all banks lending to borrowers in Tanzania must comply with Foreign Exchange Act no. 1 of 1992 as amended and the Anti-Money Laundering Act, 2006 as amended.

b) There are four main categories of non-bank lenders. These have distinct licensing requirements and approvals, namely:

i) microfinance companies and microcredit institutions must be licensed by the BOT as stipulated in the Banking and Financial Institutions (microfinance companies and microcredit activities) Regulations of 2005;

ii) savings and credit cooperative societies can only lend to borrowers if the BOT has licensed them to do so as indicated in the Banking and Financial Institutions (financial cooperative societies) Regulations of 2005;

iii) development finance institutions can only lend upon being licensed by the BOT, as set out in the Banking and Financial institutions (development finance) Regulations of 2012;

iv) private persons and institutions that fall outside the BOT's licensing purview are also to a limited extent involved in money lending activities. These usually obtain approval from the Ministry of Industry and Trade.

Foreign non-bank lenders should ensure that the borrower has obtained a DRN. All lenders should abide by the provisions of the 1992 Foreign Exchange Act as amended and the 2006 Anti-Money Laundering Act as amended.

1.2 Are any exemptions available and/or are any techniques typically used to structure around such requirements?

The BOT only licences savings and credit cooperative societies whose volume of savings and deposits meets the threshold of 800 million Tanzania shillings (TZS). Savings and credit cooperative societies below this threshold may not be subject to licensing requirements.

Banks and financial institutions with a minimum core capital of TZS 50 billion and have submitted a business plan for development finance, do not require a license to lend as development finance institutions.

Section 2: SECURITY INTERESTS

2.1 Can security be taken over the following asset classes and what documentation or formalities are required to create, perfect and maintain such security?

a) shares

b) bank accounts

c) receivables

d) contractual rights

e) insurance policies

f) real property

g) plant and machinery

h) intellectual property

i) debt securities

j) future/after acquired property

k) floating charges over all assets

Yes, security can be taken over the above asset classes. Where the security is granted over company assets, the charge should be registered with the registrar of companies at the Business Registration and Licensing Authority (BRELA) within 42 days. Where the borrower is a company, a floating charge may cover all the above asset classes.

A pledge can be used to create a charge over shares, bank accounts and receivables. Contractual rights and insurance policies may be assigned through a deed of assignment. The Law of Contract Act Cap 345 regulates pledges and assignment deeds. Real property can be charged through registration of a mortgage as provided under the Land Act Cap 113 as amended. Mortgages may be registered over a right of occupancy. Mortgages may also be registered over a residential license. Fixed charges can be created over plants and machinery and intellectual property. The Chattels Transfer Act Cap 210 provides for the registration of security over movable assets such as plant and machinery.

Under the Companies Act no. 12 of 2002 (as amended), charges over land, floating charges over property and intellectual property have to be registered at BRELA. Registration of security documents at BRELA costs TZS 33, 000.

It takes approximately 7 to 14 working days to register a mortgage in Tanzania. Registration of mortgages at the Ministry of Lands costs TZS 211,000. Registration of mortgages at the Municipalities costs TZS 80,000 to 90,000.

2.2 Highlight any issues with securing obligations that may arise in the future.

Future obligations, such as debts arising after the date of the instrument securing such future debt, may substantially exceed the value of the security provided.

2.3 Can a universal security agreement be used to grant security over all assets in this jurisdiction?

Yes. This can be done through a floating charge. This should take into account requirements under the Land Act Cap 113 as amended and the Companies Act No 12 of 200 as amended.

2.4 Can security be granted for the benefit of different classes of creditors under the same security agreement and if so, are there any issues that creditors should be aware of in adopting this approach?

Yes. This is usually the case where several creditors lend to one borrower using the same asset as security. Creditors should negotiate their interests in the security and the results of the negotiation, especially the appointment of a security agent and priority of payment of proceeds from sale of the security should be included in an intercreditor agreement.

2.5 Can security trustee or security agent structures be used in this jurisdiction to secure obligations that are owed to fluctuating creditor classes?

There is no law in Tanzania prohibiting the appointment of a security trustee or a security agent.

2.6 Briefly outline any issues to consider when transferring loans and accompanying security interests between lenders.

The lender holding security instruments should ensure that the relevant fees are paid. As the lender is in possession of the security documents, they must pay these fees and possibly seek reimbursement from the borrower. Where the loan is secured by a charge over company assets, the lender should ensure that such a company files its annual returns at BRELA. The lender transferring the loan should also sign documents discharging their interest. Usually, loan agreements permit the transfer of loans. However, this may require the borrower's consent.

The parties should also consider the tax payable on transfer of the loans and security interests.

2.7 Can security be granted by third parties? Are there any rights of contribution, subrogation or similar that might arise as a result of granting/enforcing third party security that ought to be/can be waived?

Yes, third parties can grant security. Third parties usually act as guarantors for loans extended to borrowers. Rights of contribution and subrogation may arise if they are included in loan agreements between borrowers, lenders and guarantors. Such rights may be waived, where provision for the waiver has been made in loan agreements between the parties.

2.8 Briefly outline the registration requirements, if any, applicable to security interests created in this jurisdiction, including considerations such as the timing, expense and the consequences of non-registration.

See 2.1

If a charge over company assets is not registered at BRELA, it is void against liquidators, administrators and creditors.

2.9 Briefly outline any regulatory or similar consents that are required to create security (other than board/shareholder approvals)

Generally, the registrar of companies at BRELA has to approve any security granted by a company. This also applies to cases where the company intends to create a security over land owned by the company. The registrar of companies must approve creation of the security before it is approved and registered at the Ministry of Lands.

Sector-specific approvals may be required before a licensee grants a security.

Section 3: GUARANTEES

3.1 Briefly explain the downstream, upstream and cross-stream guarantees available, with reference to any particular restrictions or limitations.

All intercorporate guarantees are available in Tanzania. They are subject to agreement between the parties. Consideration is a key requirement in all guarantees. Intercorporate guarantees may be restricted by insolvency proceedings against one of the parties to the guarantee.

3.2 What regulatory or other consents are required to grant downstream, upstream and cross-stream guarantees (other than board/shareholder approvals)?

See 2.9

3.3 Briefly outline any enforceability concerns associated with the granting of downstream, upstream and cross-stream guarantees that lenders should be aware of (for example, any exchange controls or similar obstacles).

The lender should ensure that there is consideration in all intercorporate guarantees. Solvency of the guarantor should also be examined.

Section 4: ENFORCEMENT

4.1 Do the local courts generally recognise and enforce foreign-law governed contracts?

Yes.

4.2 Will the local courts generally recognise and enforce a foreign judgment that is given against a domestic company in foreign courts (particularly the New York or English courts) without re-examining the merits of the decision?

Yes. The Reciprocal Enforcement of Foreign Judgment Act 2002 provides for the procedure to be followed in enforcing foreign judgements. While judgements from the UK are recognised under the law, those of the US are not recognised and cannot be enforced in Tanzania.

4.3 Will the local courts recognise and enforce an arbitral award given against the company without re-examining the merits of the decision?

Yes, under the Arbitration Act Cap 15, the High Court will recognise and enforce foreign arbitral awards without re-examining the merits of the decision. The enforcement of these foreign arbitral awards should not offend public policy or the laws of Tanzania.

4.4 When enforcing security, what factors significantly impact the time such enforcement takes and the value of the proceeds received from such enforcement? For example, are there any statutory requirements such as (a) holding a public auction; (b) court involvement; or, (c) obtaining regulatory consents?

Yes, statutory requirements such as the factors listed above significantly impact time and value of proceeds received from enforcement.

a) Public auction: there is no statutory requirement to enforce security through sale by public auction. The Land Act provides for sale other than by public auction. Where the sale is through a public auction, it should be advertised publicly and can only be conducted after 30 days notice of the sale has been provided to the mortgagee. This impacts the time required to enforce security.

b) Court involvement: there are no statutory requirements to involve the court in enforcing security. However, it is now a common practice for mortgagors to seek court injunctions, as soon as the notice of sale is served on them. This impacts the time required to enforce security.

c) Sector-specific regulatory consents may be required for the enforcement of security in the: banking and financial services sector; oil and gas sector; and, telecommunications sector. See 2.9. This impacts the time required to enforce security.

4.5 Are there any restrictions that apply specifically to foreign lenders when taking enforcement action?

Generally, there are no restrictions applying specifically to foreign lenders taking enforcement action. However, where the enforcement is through court proceedings, foreign lenders may be required to pay security for costs.

Section 5: BANKRUPTCY AND INSOLVENCY PROCEEDINGS

5.1 Briefly, outline the main bankruptcy/insolvency processes in this jurisdiction, including any control or influence that creditors can exert on the process, the timeframes usually involved and any mandatory filing requirements.

The Bankruptcy Act Cap 25 regulates bankruptcy proceedings. The court may issue a receiving order where a debtor or creditor presents a bankruptcy petition. The official receiver takes over the debtor's property. The debtor may thereafter present a composition in satisfaction of debts or a proposal for a scheme of arrangement. Where the debtor is adjudged bankrupt, a trustee is appointed. The length of bankruptcy proceedings varies and there is no statutory period within which they should be concluded.

The Companies Act No 12 2002 as amended regulates insolvency proceedings. These may include: compromise arrangements; voluntary arrangements by a company; appointment of an administrator; and, winding up (by court and voluntary winding up by members or creditors). In most of these insolvency proceedings, the creditors can influence the process through initiating insolvency proceedings in court or persuading the members to initiate insolvency proceedings. The timeframe for the conclusion of insolvency proceedings varies.

Creditors can apply to court for a company to enter into a compromise arrangement. They can also file in court a petition for an administration order. Creditors can also present a petition to the court to initiate winding up by court.

5.2 Are there any preference, fraudulent conveyance, clawback, hardening periods or similar issues or preferential creditor rights that lenders should be aware of?

Yes, the Companies Act No 12 2002 as amended provides preferential status for government taxes, government rent and payments due to employees of the company on winding up. In cases where the company has created preferential debts, the administrator or liquidator may apply to the court to extinguish such preferences.

The Companies Act No 12 2002 as amended makes provision for liquidators to apply to the court for orders to direct parties who knowingly benefited from a fraudulent conveyance during winding up, to contribute to the company's assets.

Administrators or liquidators may apply to the court to restore the company to its original position by annulling undervalue transactions executed two years before winding up or liquidation.

5.3 Do bankruptcy/insolvency processes provide for any kind of stay/moratorium on enforcement of lender claims? If so, does the stay/moratorium apply to the enforcement of security interests?

Yes, bankruptcy/insolvency proceedings may provide a moratorium on enforcement of lender claims. However, this may not affect security interests that have been registered with the appropriate authorities.

Section 6: YOUR JURISDCITION

6.1 In no more than 200 words, outline any cross-border financing trends specific to your jurisdiction.

Tanzania has continued to attract cross-border financing for projects in various sectors. The World Bank has recently extended financing to projects including electrification and agriculture. Reports from the BOT also indicated an increase in foreign borrowing by local banks in the first quarter of 2016.

Infrastructure projects, for example the Bagamoyo port, continue to receive cross-border financing. China Merchants Holding International and Oman Investment Fund are the key partners financing this port project with an estimated cost of $11 billion. The Hoima-Tanga oil pipeline, with an estimated cost of $4 billion, is also expected to attract substantial cross-border financing.

Syndicated loans to local borrowers continue to be dominated by foreign lenders, with limited local participation. NMB's $35 million loan and Helios Tower's $95 million loan are good examples.

About the author
 

Saidi Othman Yakubu
Managing counsel, Yakubu and Associates Chamber

Dar es Salaam, Tanzania
T: +255 762089225
saidi.yakubu@yakubuchambers.com
www.yakubuchambers.com

Advocate Yakubu is a UK trained lawyer. He is a fellow of the Chartered Institute of Company Secretaries and Administrators (ICSA) and a founding partner of the ICSA Tanzania branch. He is also a member of the Association of International Petroleum Negotiators. He is well-known in Tanzania's commercial circles and has advised several foreign and local companies and Forbes-listed individuals on corporate finance matters. He has recently acted for clients from various jurisdictions including: South Africa; Singapore; Malaysia; the UK; India; Oman; Egypt; and, Libya.


About the author
 

Timothy Kyepa
Deputy managing counsel-business development, Yakubu and Associates Chamber

Dar es Salaam, Tanzania
T: +255 718160095
timothy.kyepa@yakubuchambers.com
www.yakubuchambers.com

Timothy Kyepa has advised clients on cross-border finance and energy transactions in East Africa. He has also published on oil and gas transactions in Africa.


 


 

 

close Register today to read IFLR's global coverage

Get unlimited access to IFLR.com for 7 days*, including the latest regulatory developments in the global financial sector, updated daily.

  • Deal Analysis
  • Expert Opinion
  • Best Practice

register

*all IFLR's global coverage published in the last 3 months.

Read IFLR's global coverage whenever and wherever you want for 7 days with IFLR mobile app for iPad and iPhone

"The format of the Review has changed over the years; the high quality of its substantive content has not."
Lee C Buchheit, Cleary Gottlieb

register