The inaugural IFLR China-Africa Investment Forum was held on June 5 at the Grand Millennium in Beijing and it focused on the hot topic of natural resources from China.
Over 200 delegates met to discuss the opportunities and challenges in structuring deals, contracts and raising capital in Africa. Leading counsel from international and domestic law firms met with in-house counsel from banks, SOEs and corporates to find out the best approach to invest into Africa.
Below are the key takeaways from every session on June 5. Please use the links on the right hand side of this page to discover more details, including: the final agenda; speaker details; the final delegate list; presentations; photos; and more.
The challenges, including resources nationalism, and opportunities in Africa resources and mining
- Resource nationalism is the key challenge facing resources investments in Africa. Governments have become more active in renegotiating contracts, which has resulted in heated discussions because oil and gas and mining investments require enormous capital expenditure upfront.
- Many African jurisdictions are revising their mining codes, and governments have become more assertive. They may look to renegotiate mining contracts on the basis of the new law.
- But these mining contracts may have been badly drafted or were negotiated decades ago and are unfair at this point. Politics, such as a change in government, may also result in contract renegotiations.
- The best way to protect contracts is to ensure that everything is compliant. If a minister assures a company that it shouldn't worry about an issue, it still needs to consider that issue. Stabilisation clauses in contracts are relatively secure if companies remain compliant.
Structuring M&A deals for resources investment
- Universal challenges in both South Africa in Nigeria are network, power supply and revenue collection, and how you manage those with an aging or non-existent infrastructure. Capital costs are massive, and will require financing from the international markets.
- In 2012, implementation for long-awaited privatisation kicked off. Energy suppliers and distribution companies were sold off to international and local investors, often acting in partnerships.
- In the short term, expect more competition and a more diverse power mix in Nigeria. But eventually market participants expect a fully privatised power market in Nigeria.
- Many of Chinese groups are doing deals for the very first time, so it's a learning curve that everyone's going through which has made doing deals a challenge.
- Deal terms depend on several factors, such as whether the acquirer is a SOE, a private investor or a consortium, and whether they're planning a takeover, a joint venture or a toe-hold investment. Investor consortiums may comprise private investors, such as private equity funds, banks and commodities traders.
- Financing deals has become more difficult for TSX and ASX-listed companies because those markets have been closed. Companies are looking to structures such as off-take securitisation, and royalty streaming agreements.
- Although the Chinese economy is slowing, expect to see more investment into Africa. Following further infrastructure development, Chinese companies may begin moving their metals and resources processing facilities to Africa.
Infrastructure in Africa
- Mozambique's coal, oil and gas and mining sectors have various opportunities. But market participants must be aware that there are specific legal regimes for each sector.
- A new Petroleum Law has been approved by the Council of Ministers and sent to the Parliament for final approval and enactment, and requires a local partner for all service providers for the "Mozambicification" of resources. A new mining law and regulations with similar objectives are expected to come into force later this year.
- The tax regimes for oil and gas and mining are very similar, involving an income tax and VAT. But there are some specific rules, for example, surface taxes and production taxes are applied to the mining sector.
- Foreign exchange is controlled. Oil and gas companies are subject to a special regime for foreign exchange, but holders of mining licenses have the right to export proceeds from the export or sale of minerals.
Capital markets – Raising Finance in Toronto and London (Aim)
- A lack of infrastructure is a hurdle for African development. Infrastructure investment in Africa is projected to reach Chinese companies, both private and state-owned, will maintain if not increase their investment into African infrastructure.
- Market participants are concerned with legal risk as guidelines are issued on a case-by-case basis, rather than establishing clear universal guidelines and procedures.
- New financing structures have been seen so that the state and private companies work together to finance much-needed infrastructure, such as railways and ports. But a deadlock or disagreement would prove problematic under these structures.
- London markets understand Africa, and it is relatively easy to find advisors that are familiar with specific jurisdictions. The AIM market in particular provides opportunities and exposure for Africa-based resources companies.
- The TSX is considered the premier market for resources companies. There is an active and well-informed retail investor base for natural resources companies, and there is a great deal of analyst coverage of resources companies in Canada.
- However the TSX has recently introduced new regulations related to auditing and fraud detection that specifically target at emerging markets issuers. They were prompted by negative experiences such as Chinese company Sino-Forest’s accounting fraud.
FOCUS: OHADA countries
- Mauritius is the most advantageous offshore jurisdiction for tax structuring in Africa, boasting 24 tax treaties that are signed, waiting for signatures or being negotiated. It also has a favourable tax regime.
- It is a member of the SADC and COMESA, providing investments additional protection from expropriation and treaty renegotiation.
- China's tax laws require business substance, so utilising a jurisdiction solely for its tax treaties may fail China's substance tests. Rather than using Mauritius as a holdco jurisdiction, market participants encourage companies to set up their regional headquarters in Mauritius.
Projects under South Africa's legislative changes
- The Organisation for the Harmonisation of Business Law in Africa (Ohada) adopted its Uniform Act Organising Securities in 2011, which provided a legal framework for security interests in Ohada member states.
- However contracts governed by UK or French law will remain popular as their legal regimes are more certain: Ohada law lacks historical precedents and questions remain over its practical application.
- Most Ohada jurisdictions are not signatories to the New York Convention and therefore do not accept foreign arbitral awards. Although Ohada has established the Common Court of Justice and Arbitration (CJJA) in Cote d’Ivorie, counsel recommend arbitrating disputes in ICC or ICSID arbitration because the CJJA is a new entity and is perhaps less familiar with complex commercial disputes.
- In 2012, South Africa redrafted 11 of its financial services laws in relation to financing, securities and trusts. Because the changes were so broad, their potential impact is hard to evaluate.
- Taxation and regulatory burdens may be higher, resulting in more expensive short-term financing. South African financial institutions will be especially impacted as they do not have a deep and broad market for financial products.
即将在2013年北京举办的中非论坛之构想源于2012年五月在伦敦成功举办的非洲论坛。伦敦论坛吸引了逾300多名高层次的与会者。演讲嘉宾包括世界顶尖律师事务所的合伙人，包括Herbert Smith Freehills 事务所、Paul Weiss 事务所和White & Case 事务所等等。还有来自金融领域的高层代表，包括 来自英国巴克莱银行Barclays，瑞士瑞信银行Credit Suisse，英国渣打银行Standard Chartered，德意志银行Deutsche Bank的代表。他们带来了资本市场、企业并购以及资源类资本项目在当地的最新动向。这次北京论坛将在2013年6月5日在北京举办。论坛将聚焦中国企业在非洲资源领域投资项目的运作。自2010年起，非洲每年接受中国方的投资超过1000亿美元，其中绝大多数是资源类项目。2012年中，中国曾承诺在未来三年内向非洲主权国家贷款200亿美元帮助他们发展。