In August 2007 mandated lead arrangers Bank of Tokyo Mitsubishi UFJ, BNP Paribas, Calyon, ING, Mizuho, Shinhan, SMBC, Société Générale and Woori and closed a US$405mn dual tranche export credit agency-backed facility in support of one of the largest project financing ever developed in Sub-Saharan Africa.

The financing forms part of the US$3.6bn greenfield nickel development in Madagascar, known as the Ambatovy Mineral project.

Patrice Caporossi, associate director, structured export finance, capital raising and financing at Société Générale comments: “We believe that this project will set a precedent in Africa, as it is one of the largest mining financings in the continent involving international commercial banks and ECAs.

Referring to the US$405mn commercial tranche, he adds: “The tenor is unprecedented and was reached given the political cover brought by the ECAs and the multilaterals, and was driven as well by the high prices in the natural resources field.”

The US$405mn facility consists of two 17-year debt facilities of US$210mn and US$195mn, backed by the Japan Bank of International Cooperation (JBIC) and Korea Export-Import Bank (Kexim) respectively.

Co-lead arrangers and underwriters on these deals are Bank of Tokyo Mitsubishi UFJ, BNP Paribas, Calyon, ING, Mizuho, Shinhan, SMBC, Société Générale and Woori.

Both the JBIC and Kexim tranches feature the same payment schedules, margins, fees as well as the longest tenors ever achieved in the nickel market.

The facility pays a margin of 62.5 basis points pre-completion. In the years 1-4 post-completion, the two tranches pay 147.5bp, years 5-8 pay 167.5bp and from nine years onwards it pays 187.5%.

The remaining funds of the US$3.6bn project financing have been raised in the form of a US$1.5bn equity investment and subordinated shareholder loans, US$2.1bn of senior secured debt, a US$490mn JBIC direct loan, a Kexim direct loan of US$455mn, a US$150mn loan from the African Development Bank (AfDB), US$300mn from the European Investment Bank (EIB) and a US$300mn loan from Export Development Canada (EDC).

The project involves a number of international companies, hence the participation of so many export credit agencies and development banks.

Sherrit, a Canadian mining and energy company, is providing pressure acid leach technology. Production will be mainly shipped to Japan and Korea through offtake agreements with Korea Resource Corporation (Kores) and Sumitomo.

Kores is a state-owned South Korean company with a mandate to support Korean domestic mineral resource development efforts as well as securing mineral resources from abroad. Sumitomo is a leading Japanese commodities trader and distributor.

The involvement of so many different investors threw up a number of challenges and risks to mitigate, as Caporossi at Société Générale comments:

“With regards to construction risks, these are well-managed by the sponsors, and Sherritt, through its Dynatec subsidiary, has a long history of development of pressure acid leach technology.”

He adds: “With regards to the operation period, the offtake of the project is secured through long-term offtake contracts with Sumitomo and Kores which are also key shareholders of the project.

“Key risks are nickel price fluctuations, but the lenders can take comfort from the debt:equity ratio (57:43) of the financing and from the excellent economics of the project which can absorb large fluctuations in nickel prices.”

The greenfield Ambatovy nickel project is located in the central highlands of Madagascar near Moramanga, around 130km from the capital of Antananarivo. Ambatovy is the first project to which Madagascar’s large mining investment act is applied.

The project is expected to make a huge contribution to the country’s economic development, directly and indirectly through the employment of 90,000 people during construction, and approximately 60,000 people during operation. Fiscal revenue generated by the project is estimated at US$600mn and it is expected to boost GDP by US$120mn per year.

Deal Information:
Borrower: Ambatovy Mineral (AMSA) and Dynatec Madagascar (DMSA)
Sponsors: Sherritt; Kores; Sumitomo; SNC-Lavalin
Amount: US$405mn
Mandated lead arrangers: Bank of Tokyo Mitsubishi UFJ; BNP Paribas; Calyon; ING; Mizuho; Shinhan; SMBC; Société Générale; Woori
Tenor: 17 years
Law firms: Milbank (lenders); Sullivan & Cromwell (sponsors)
Date signed: August 2007