NIGERIA Law and Practice Contributed by: Ben Unaegbunam, Omolola Coker, Sanford Mba, Promise Osimhen, Chidera Chikere and Oluwaseun Denagan, Dentons ACAS-Law (Adepetun, Caxton-Martins, Agbor & Segun)
7.5 Risk Areas for Lenders Lenders in Nigeria face some legal risks if a borrower, security provider, or guarantor becomes insolvent. Please refer to 7.1 Impact of Insolvency Processes regarding the risk of securities and guarantees being set aside as fraudulent preferences or transactions at undervalue in the event of the insolvency of the security provider or a guarantor. In addition, unsecured creditors face the risk of subor- dination and loss of priority in the payment waterfall. Where a lender’s security is defective or partially unse- cured, it will rank alongside other unsecured creditors, reducing the value of recovered debts. Please see 7.2 Waterfall of Payments regarding the payment water- fall and priority of payments. Project finance continues to thrive in Nigeria, with global lenders remaining at the forefront of capital pro- vision and funding. The growth of project finance is driven by the country’s need to improve infrastructure, diversify its economy, and encourage private sector participation through public-private partnerships. In recent years, Nigeria has witnessed significant financ- ing across multiple sectors, including oil and gas, transportation, and infrastructure. One notable transaction is the Lekki Deep Sea Port under a USD1.5 billion Chinese-backed arrange- ment combining equity and long-term debt provided primarily by China Development Bank. The project is designed to decongest Lagos ports and expand regional export capacity. Another landmark deal is the USD747 million syndicated loan co-ordinated by Deutsche Bank to fund the first phase of the Lagos- Calabar Coastal Highway. The Ajaokuta–Kaduna– Kano (AKK) Gas Pipeline, valued at approximately USD2.6–USD2.8 billion, is a flagship oil and gas infrastructure financing. The AKK project was struc- tured on an 85% debt and 15% equity basis, with debt financing led by Industrial and Commercial Bank of China (ICBC), Bank of China, and other Chinese financial institutions, backed by export credit insur- 8. Project Finance 8.1 Recent Project Finance Activity
ance from Sinosure and supported by a sovereign guarantee from the federal government of Nigeria. Nigeria has also seen final investment decisions (FIDs) and substantial equity commitments from sponsors in the oil and gas and renewable energy sectors in recent years. These commitments reinforce investor confidence in the Nigerian market, creating opportu- nities for innovative project finance structures in the years ahead. 8.2 Public-Private Partnership Transactions The Infrastructure Concession Regulatory Commis- sion Act (ICRCA) 2005 is Nigeria’s principal legislation governing public-private partnerships (PPPs) between the private sector and the federal government. The ICRCA applies to investment and development pro- jects involving any federal ministry, department, or agency (MDA). The ICRCA also empowers MDAs to enter PPP contracts or grant concessions to private entities for financing, constructing, and maintaining federal infrastructure. Several states also have their own PPP laws and offices. The Fiscal Responsibility Act 2007 imposes borrowing and fiscal discipline limits on MDAs and states, indi- rectly shaping PPP structures. Sector-specific frame- works include the Electricity Act 2023 for power, the Nigerian Ports Authority Act for ports, and the Federal Highways Act for roads. All federal PPPs require Fed- eral Executive Council approval, with similar approval requirements under state laws. From a lender’s perspective, the most significant obstacles are political and sovereign risk, off-taker creditworthiness, foreign-exchange convertibility and repatriation risk, and regulatory uncertainty. For pro- jects financed in foreign currencies but which gener- ate revenue in the local currency, currency controls and FX scarcity pose a significant commercial risk. In some cases, changes in administration may also come with a change in project priorities, affecting previous project commitments. To mitigate these, lenders typically require guarantees from the federal government or the relevant state government to sup- port these PPPs.
439 CHAMBERS.COM
Powered by FlippingBook