A few weeks ago, Dangote Industries Limited, the Nigerian holding company for the businesses of Africa’s most successful business person, announced the signing of a loan facility agreement for US$3.15 Billion to part finance the construction of a crude oil refinery with a production capacity of 400,000 barrels of crude oil and 600,000 metric tonnes of polypropylene per day; and a fertilizer plant with a capacity of 2.8 metric tonnes of urea per annum. The announcement is remarkable for a number of reasons, not least the fact that it is not just the only major financing transaction in Nigeria’s “nonstarter” private refining industry, but also the fact that never before has so much money been advanced to a single borrower in a single financing transaction in Nigeria.
One aspect of the story, which seldom featured in the news stories that trailed the announcement, is the significance of the transaction within the Nigerian corporate finance space. About US$2 Billion (two thirds) of the financing commitment was secured from Nigerian banks, the majority of the mandated lead arrangers were Nigerian banks and, alongside international counsel, Nigerian law firms guided the parties to a successful execution of the transaction. Banwo & Ighodalo advised the Dangote Group. The deal is a loud and clear testament to the continuing development of the framework for financing the real sector in Nigeria.
Since the beginning of 2013 there have been a number of other clear (but perhaps not so loud) testimonies. In the telecommunications industry, in April MTN Nigeria announced a N470 Billion medium term financing from a consortium of Nigerian and foreign banks with Nigerian banks providing up to 70% of the financing. Subsequently in June, Emerging Markets Telecoms Service Limited (Etisalat Nigeria) announced the signing of agreements for a US$1.2 Billion medium-term syndicated loan facility to be provided by a club of 13 banks. Also, in the days running up to the August 21st deadline set for payment of balances for the assets recently sold by the Bureau of Public Enterprises (“BPE”) under the Nigerian Power Sector Privatisation program, thirteen (13) of the preferred bidders concluded financing transactions totaling about US$1.734 Billion. The majority of these fundings also came from Nigerian banks.
However, all of these testimonies should not lead one to think that the Nigerian commercial and legal framework for financing the real sector has come of age. Although these tend not to be apparent in the grand signing ceremonies, the negotiations of these deals have seldom been smooth sailing. The framework is far from perfect and a great deal of development is still required particularly in the areas of perfection and costs of taking security. The focus of this piece is on perfection cost and it’s impact on financing transactions.