IFLR China-Africa Investment Forum 2013 - Coverage


June 5, 2013 - China-Africa Investment Forum, Beijing

2013年6月5日 - 中非投资论坛, 北京

Mauritius: the holdco gateway to African FDI
For Chinese investors in Africa looking for holding company (holdco) jurisdictions,
Mauritius is emerging as an alternative to the typical offshore options. More...

African security enforcement improves under Ohada
Foreign investors looking to Africa are reaping the benefits of greater certainty under
the Organisation for the Harmonisation for Business Law in Africa's (Ohada)
investment framework and arbitration regime. More... 

PPPs to deliver Africa infrastructure
To address Africa's enormous infrastructure needs, counsel are seeking new 
structures that encourage closer collaboration between the private sector and
governments.
More...

KEY TAKEAWAYS

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.
FOCUS: Nigeria
  • 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.
Structuring M&A deals for resources investment
  • 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.
FOCUS: Mozambique
  • 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.
Infrastructure in Africa
  • 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.
Capital markets – Raising Finance in Toronto and London (Aim)
  • 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: Mauritius
  • 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.
FOCUS: OHADA countries
  • 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.
Projects under South Africa's legislative changes
  • 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.


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