UNDERSTANDING PROJECT FINANCE IN THE OHADA ZONE

The Concept of project finance

A project finance is a long-term financing of infrastructural (mall, roads, towers) or industrial (pipelines, factory etc.) projects based on a non-recourse (secured loan: pledge, mortgage etc.) in which the finance of the project (finance debt) will be repaid by the revenues generated by the project itself.

The legal aspects of project finance comprises of all law related processes in the development and realisation of the project finance like debts, securities, incorporation of companies, compliance, taxation, exchange control and any other regulatory regime that might apply.

Currently, Africa is in an apparent development deficit. Statistically, there is a need for $93 billion investment in infrastructure every year so as to boost Africa’s GDP against about $45 billion investment actually invested each year. This analysis indicates a significant gap.

Parties to a Project finance

Basically, parties to a project finance are: the lender, the borrower, and the security/collateral agent.

1.      Lender

The Lender is an investor or a project financing structure with a number of investors (e.g. banks, hedge funds or finance house) who provide most of the capital for project finance. Lenders are mostly commercial banks. 

2.      Borrower

A borrower is a project company who perceives funds or capital from the lender to realize the a finance project.

3.      Security agent

A security/collateral agent is the financial institution which holds and supervises securities/collaterals on behalf of the lender under a facility agreement as security performance of the borrower’s obligations under the facility agreement.

The OHADA Uniform Act on securities clearly define the role and powers of a security agent who is appointed by a deed.

These parties all sign a contract known as a facility agreement which is a contract which sets out the terms and conditions (including conditions precedent and conditions subsequent) which must be fulfilled by the borrower to make the facility loan available.

The functioning of a project finance

Briefly, the lender defines terms and conditions to be respected by the borrower for the granting of a loan. The lender equally appoints the security agent for the constitution, registration, management and realization of securities on behalf of the lender.

The applicable OHADA laws in project finance

In principle, OHADA Uniform Acts (together with national laws) will apply to a project finance depending on the type of project.

Uniform Acts which are most frequently applicable to a project finance are;

·         Uniform Act on Securities

·         Uniform Act on Collective Proceedings for Clearing of Debts

·         Uniform Act on General Commercial Law

·         Uniform Act on Commercial companies

·         Uniform Act on Arbitration

Available securities under the OHADA laws used in project finance

Securities are obligations to be full filled in order to discharge an obligation, in our case, this will be the facility amount which will enable the realization of the project.

The OHADA Uniform Act on securities outlines the different types of securities which are permitted in the OHADA zone.

In Project Finance, securities which are mostly used are:   

-     - Pledge of intangible properties are clearly stated (debts, bank accounts, partnership rights, transferable securities, portfolios, business property and intellectual property rights) Article 125 of the Uniform Act on Securities

-          - Mortgages (contractual mortgage) article 203 of the Uniform Act on Securities

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