Mandated lead arrangers Calyon and Banco BPI signed a US$800mn electricity prepayment facility for electricity producer Hidroeléctrica de Cahora Bassa (HCB) in Mozambique in November 2007, marking the country’s first big ticket commercial transaction executed without political risk insurance or the support of multilaterals.

The deal is also the first cross-border electricity prepayment completed in Africa and sets a benchmark for future financings in both the African continent and in Mozambique as the country develops its infrastructure and copious natural resources.

The facility is being raised on behalf of the government of Mozambique to pay for the acquisition of a majority stake in Hidroelectica de Cahora Bassa (HCB) from the Portuguese government. It follows an agreement signed in October 2006 between the two governments to transfer control of HCB from Portugal.

“The most unique feature of the deal was the political and emotional charge surrounding the deal for the governments involved. HCB ownership had been a delicate diplomatic issue since Mozambican independence in 1975 and indeed the control of the asset had become, beyond its material value, a symbol of the affirmation of Mozambican economic and national empowerment,” comments Maria Jo Cabral, director, project finance division at Banco BPI.

The transaction structure involved the setting up of a special purpose vehicle known as Renascer, incorporated in Mauritius, to act as the borrower. The deal was then structured as a classical structured commodity finance (SCF) transaction, which has been enhanced to reflect the unique circumstances of the underlying commodity, the countries and the currency.

It carries a 10-year tenor, the longest tenor to date secured on a structured commodity finance deal in Africa. The margin being paid on the transaction between years 1-2 is 190 basis points, rises to 240bp in years 3-6 and increases again to 280bp between years 7-10.

The implementation of a solid structured financing is intended to attract further investment from foreign sources into Mozambique, as Ian Stern, director, Africa-Latin America, structured commodity finance at Calyon, remarks: “The Mozambique government has been very shrewd in relying on well-tested financial engineering to demonstrate very publicly their openness to cross-border investors and lenders, and its ability to work with the private sector.”

Although Mozambique gained its independence in 1975, Portugal retained majority ownership with the intent of recouping construction costs, before it would transfer ownership to Mozambique.

However, interruptions to the cashflow generated by HCB caused by civil war resulted in the two governments negotiating a restructuring of HCB followed by an acquisition.

“Calyon’s involvement is a result of a good relationship with Banco BPI who worked closely with their Mozambique affiliate, Banco BCI,” explains Stern.

“The two banks saw in each other a bank who understood the historical background to the deal both in Portugal and Mozambique, and a bank with a solid track record across emerging markets in structuring and arranging structured commodity finance deals. The government saw a team who had the track record, understanding and experience to deliver a very public deal on time.”

In terms of the financing, the government wanted to arrange a purely commercial financing, without recourse to itself and without requiring PRI or multilateral support.

“The lack of recourse to either the government of Mozambique or multilaterals required the arrangers to thoroughly understand the performance risk in HCB and to work closely with previous and current management to provide lenders with the comfort they require to take such performance risk,” adds Stern.

The main offtaker is Eskom, which paid in South African rand, and the arrangers had to develop a funding structure that would neutralise the foreign exchange risk for both HCB and the lenders, while accommodating lenders without natural access to rand funding.

The transaction bodes well for the economic future development of Mozambique, and for foreign banks looking to do business in the region.

“The financial closing constitutes a landmark for financing opportunities and the general development of the country’s economy, inasmuch as it is a purely commercial (ie, exclusively based on project risk) large-scale long-term deal closed in Mozambique by non-regional banks at a time when the country has a sizeable pipeline of strategic projects in the energy sector, among others,” adds Cabral.

“Given their magnitude, these projects will demand significant amounts of external financing which can put Mozambique in the southern African region map as a key energy provider.”

Deal Information:




Mandated lead arrangers: Banco BPI; Calyon
Amount: US$800mn
Tenor: 10 years
Margin: 190bp – 280bp
Law firms: Linklaters; Pimenta, Dionisio & Associados; Weber Wentzel Bowens; Appleby; Scanlens & Holderness; Maples & Calder
Date signed: November 2007