Articles ‘ African LMA and new Zambian foreign currency restrictions

In our main article this month, Kaushik Ray takes a look at the use and impact of the Loan Market Association’s ‘African LMA’ finance documents, six months after their launch.  In a Focus Legal Update, we take a look at the potential impact in Zambia of new regulations restricting the use of foreign currency in domestic transactions – the impact on any Euro, Dollar, Sterling or Rand lending into Zambia may be significant.

New joiner

We welcome to the Trinity team Luke Muchamore. Luke is a senior lawyer who trained and qualified as a solicitor at Allen & Overy LLP, and was a Senior Associate in its Projects, Energy and Infrastructure group prior to joining us, having worked in the London, Paris and Luxembourg offices of Allen & Overy LLP.  Luke primarily advises on project contract documentation including concession agreements, construction contracts, operation and maintenance contracts and ancillary documentation such as direct agreements and performance security. Luke’s experience includes the energy and infrastructure sectors in respect of projects in the UK, Europe, Africa, China and the Middle East.

Closed deals

In the last two months, we closed or signed documentation in relation to the following transactions:

— Advising an Africa-focussed commercial bank on the pre-export financing relating to oil assets inFrancophone Central Africa

— Advising a major commercial lender on the financing of a $700m rail project in Malawi and Mozambique

— Advising the sellers on the sale of an oil exploration business focusing on opportunities in West Africa

— Advising a UK-based fund on the sale of its interests in several equipment finance special purpose vehicles

— Advising an Africa-focussed commercial bank on the pre-export financing relating to certain commodities in West Africa

— Advising a major commercial lender on the financing of a telecoms transaction in Zambia

— Advising a major commercial lender on the financing of the refurbishment of an airport in Ghana

New instructions

We have been instructed on the following new matters in the past two months:

— Advising the developers of a mine in Nigeria

— Advising a commercial lender on three renewables projects in the South African renewable energy programme (Phase 2)

— Advising a telecoms financing business concerning a third party investment

— Advising a consortium in relation to the construction of a major leisure and commercial facility in Rwanda

Apart from the above, we continue to work day-to-day on transactions in Ivory Coast, Kenya, Ghana, Mozambique, Sierra Leone, Ethiopia, Rwanda, Mauritius, South Africa, Zambia, Madagascar, Uganda, Tanzania, Liberia and Nigeria as well as in the UK and Romania.

We are also fresh from providing client seminars to clients in Europe and beyond on matters such as debt-to-equity convertible loans; North African jurisdictional developments; and other market updates.

Rankings

We are pleased to confirm that we have placed well in the Chambers & Partners 2012 rankings for Projects & Energy work in Africa alongside some of the largest firms in the market. The guide also ranks all of Trinity’s partners individually with Trinity Senior Partner Paul Biggs one of only three in the top tier. With 28 firms rated overall, Trinity is equal first in terms of number of named individuals.

Projects & Energy: Africa-wide

• Band 1 Allen & Overy LLP; Clifford Chance LLP; Herbert Smith
LLP; Linklaters; Norton Rose LLP; White & Case LLP

• Band 2 Trinity International LLP; Chadbourne & Parke LLP; Cleary Gottlieb Steen & Hamilton LLP; [Dewey & LeBoeuf LLP;] Hunton & Williams LLP; Milbank, Tweed, Hadley & McCloy LLP; SNR Denton

• Band 3 Baker & McKenzie; Baker Botts UK LLP; Eversheds LLP; Fasken Martineau LLP; Gide Loyrette Nouel AARPI; Mayer Brown International LLP; Miranda Correia Amendoeira & Associados; Simmons & Simmons LLP; Vinson & Elkins RLLP; Webber Wentzel

• Band 4 Bowman Gilfillan; DLA Piper LLP (US); Greenberg Traurig Maher LLP; Orrick Rambaud Martel; Shearman & Sterling LLP

Getting in touch

As ever, if you have any comments or questions about Trinity, about Focus, or generally, please get in touch.

You can follow us on Twitter @TrinityIntLLP.

The post News – June 2012 appeared first on Trinity International LLP.

In this article, we take a look at the South African “African LMA” documentation and give a very basic overview how it differs from the London primary market documents.  With huge South African deals in the renewables space set to close imminently, we thought now would be a good time to take a look at the documents, nine months after their launch.  Further, detailed advice is of course available from the Trinity finance team.

What is the LMA?

The LMA, or the Loan Market Association was created in 1996 and is based in London.  It develops best practice and standard loan documentation in both primary and secondary loan markets.

What is the African LMA?

The African Loan Market Association (ALMA) is a regional, non-profit trade association dedicated to supporting and growing the syndicated loan market in Africa and was launched in late September 2011. It is subscription-based service open to any institution with an interest in syndicated financing in Africa.  It is based in Johannesburg.  Loan documents for the Kenyan and Nigerian markets are currently in development.  

What are the key differences with the English law and South African law documents?

We have broken down the key changes into categories: costs; commercial differences; and South Africa-specific differences.

 –          Costs

The African LMA, in its non-negotiated form, takes a firmer stance on costs than typical in English law LMA-based loan agreements.  In particular, break costs in the South African market – commonly known as “recovery-type” breakage costs – are drafted wider than typically seen outside of South Africa.  We would also note that the concept of “Mandatory Costs” in the English law LMA is of course absent – given the South African Reserve Bank’s stricter liquidity requirements, this is often included in the definition of Margin.  Finally, increased costs includes a reduction in the rate of return on capital brought about by more capital being required to be allocated by a Finance Party.  Borrowers are likely to resist this but given the Basel III framework is still in progress, this gives Lenders mider protections which they would be unwise to give up.

–          Commercial Changes

The ALMA loan agreements hold stricter information requirements (in terms of indemnities, representations and covenants) than under the English LMA documents.  In addition, amendments due to change in law are expressly a cost to be borne by the Borrower.  The ALMA documents also contain definitions of MAE and “control” – which are usually negotiated on a case-by-case basis, at least in project finance.  The non-negotiated definitions are, on the whole, Lender-friendly.

–          Representations

The ALMA document contains drafted representations in respect of insolvency, breach of laws, sovereign immunity and environmental warranties.  These are often included in any case in corporate or project financings; however their inclusion in the standard drafts are an indication of the types of things South African lenders are concerned with.

–          Undertakings

The ALMA document contains stricter provisions in terms of the negative pledge and environmental undertakings.  In addition, and something that we at Trinity advise Lenders to consider carefully, is the addition of sanctions language as standard.

–          Events of Default

The events of default under ALMA would be familiar to any practitioner in any loan market. Interestingly, cessation of business and any qualification in any audit are also included as Events of Default – which are not necessarily standard in corporate financings under a negotiated English LMA-based loan agreement.

–          South Africa-specific changes

Finally, the African LMA contains several South Africa-specific features, including references to JIBAR, amendments to the definitions of Quotation Date/Reference Banks/Screen Rate, South African-law specific governing law and transfer provisions and South African law gross up provisions.

–          A new paradigm?

Whilst the ALMA documents are easily recognisable and familiar to practitioners and Lenders outside of the African market, the built-in changes clearly reflect the concerns (e.g. in relation to KYC, costs, Borrower sophistication) of South African lenders in the emerging economies of sub-Saharan Africa.

It would appear that the precedent form is not currently widely used, though our own view is that is likely to change.  Clients have noted that many of the provisions (break costs, sanctions etc.) are simply reflective of what they always included in English-law LMA documents.

What will be interesting is to see how the Kenyan and Nigerian models differ. What is not in doubt however, is that moving towards standardised documentation will ultimately lead to lower costs for Lenders and Borrowers alike with negotiation times reduced and legal uncertainties ironed out.

Kaushik Ray, Senior Associate, Trinity International LLP

The post The African LMA appeared first on Trinity International LLP.

The Regulations stipulate that ‘[a] person shall not quote, pay or demand to be paid or receive foreign currency as legal tender for goods, services or any other domestic transaction.’ A domestic transaction is defined as ‘any transaction within the Republic that involves a payment of a sum of money in or towards the satisfaction of a debt due or for a credit of, a person resident in the Republic’.

The Regulations effectively prohibit a Zambian resident from contracting in any currency other than the currency of Zambia for purposes of a ‘domestic transaction’. The question is whether this by implication mean that all loans granted to Zambian entities should be denominated in Kwacha (as opposed to US Dollars, or Euro, or Rand or Sterling).

Several lenders approached the Bank of Zambia to obtain clarity on the impact of the Regulations on foreign currency loans.  The Bank of Zambia issued a clarification on 13th June 2012.  Unfortunately – it still remains unclear whether a loan made by a foreign entity to a Zambian resident would be classified as a “domestic” transaction. The clarification states that domestic transactions ‘shall not include’¦ foreign currency loans and advances by commercial banks registered in Zambia’.  It is not clear whether this means that the loans have to be advanced by the actual Zambian entity or whether the loans can be made by any branch of a bank ‘ provided that that bank is registered in Zambia.  In either case, the clarification is not quite as clear as lenders (or Zambian borrowers) would like it to be.

In the meantime, the advice is that as a condition precedent to disbursement, lenders seek a letter or other documentary evidence from the Bank of Zambia confirming that the loan and all payments under the relevant finance documents can be made in the foreign currency and do not fall under the Regulations.

We will keep clients updated as to any movements in the advice.

Kaushik Ray, Simon Norris, Trinity International LLP

The post Legal Update – Brouhaha in Lusaka – Confusion in foreign currency lending in Zambia appeared first on Trinity International LLP.