The third annual IFLR Africa Forum returned on May 20, 2014 and focused on the laws, regulations and transactions surrounding the continent's natural resources. It provided strategies for managing governmental nationalism, raising finance for projects, infrastructure opportunities and M&A/PE transactions. Legal issues from discovery of the resources and extraction to transport and corporate acquisitions were debated by leading private practice lawyers and in-house counsel from UK, European and African-based banks, corporates and funds at the Waldorf Hotel in London.
The key takeaways from this event are at the bottom of this page.
"IFLR has done a great job by providing a platform for professionals from all walks of life to rub minds towards international development" – Olubukola Ogunwale, in-house lawyer, Wema Bank
"A very informative and useful event" – Edmond Leedham, chief counsel, US Bank Global Corporate Trust Services
"A success enhanced by its organisation, content, panellists, administration, venue and delivery. Well done IFLR!" – Lara Oyesanya, senior legal counsel, Barclays
"The event has done a good job of providing sounds perspectives on issues that seem to linger unresolved for potential investors looking at taking up business stakes in African markets" – Charles Ojo, manager, Central Securities Clearing System
"This was an interesting event providing background on the legal, political and socio-economic issues in Africa. The event is useful as an insight into Africa as a trade hub" – Letitia Seglah, product manager, JP Morgan
IFLR promotes an interactive panel format to engage with the audience. This offers the opportunity for everyone to get involved on a range of subjects.
Raising finance for African projects
- The biggest issue for project finance in Africa is inexperience of doing large projects;
- Sovereign credit ratings are crucial for project financings in Africa – they drive lending appetite and the amount of liquidity available;
- Getting export credit agencies (ECAs) involved in projects at the earliest opportunity (ideally at the tendering phase) is key to a project’s ultimate success;
- Using advisors that are based locally or have local knowledge is also key;
- The ideal funding mix in today’s market is roughly one third ECA, one third international commercial lenders, and one third development finance institutions. However, there is significant appetite from ECAs, so the advice is to research their ability to provide funding.
Infrastructure opportunities to continue Africa’s growth
- There are many emerging opportunities in integration infrastructure such as cross-border rail and road networks across west Africa;
- The perception of corruption in Africa is a key challenge. Aside from Botswana, no African country scored above 60 on Transparency International’s Corruption Perceptions Index;
- Africa’s limited airport infrastructure presents another challenge;
- Stakeholders should look at the whole asset approach to infrastructure projects and how to mitigate risks at every level of the cycle;
- Viability gap funding in African infrastructure is a key trend. There is an increasing realisation that this is often the reason deals are not getting done, and significant effort directed at addressing the gap.
M&A structuring for resources investment
- Global competition for assets has impacted the resources sector over recent years. In particular, China’s scramble for African assets has sparked other countries’ interest in the region;
- Infrastructure assets themselves are becoming an increasingly important feature of deals. Local governments now view their resources as an opportunity to develop their countries;
- Where the law requires international investors to team up with a local partner, these deals will require innovative structuring to take the local on-board without having them bear the full burden of the financing;
- Ministerial consent is required for oil and gas deals in Nigeria. Gaining this consent will take time, which needs to be factored into documentation;
- Governments also have a lot of soft power over projects in Africa, whether over customs clearances to export products or employment issues, such as expat visas.
FOCUS: Oil and gas
- Africa has 8% of global oil reserves, 7% of global gas reserves and 10% of global production;
- Africa favours Production Sharing Contracts over concessions or service agreement. Therefore the contractor takes all the exploration risk and the state takes an agreed share of actual production;
- There is a growing trend for governments seeking more local content and more government involvement in projects. But financial terms continue to be attractive where the oil and gas industry is new;
- Nigeria’s Petroleum Industry Bill is delayed due to oil companies’ concerns over fiscal elements, geo-political arguments on awards to local oil communities; ministerial power; and the management of frontier areas.