Deal information

Borrower: Clidet 957
Amount: US$43mn (plus US$14.2mn debt service reserve funding loan)
Sole arranger: HSBC
Development bank: BNDES
Law firms: Cliffe Dekker Hofmeyr (South Africa); Baker & McKenzie (Brazil)
Tenor: 11 years
Date signed: September 8, 2010

HSBC’s project and export finance team closed a US$43.5mn buyer’s credit backed by Brazil’s development bank BNDES, in support of the new Rea Vaya bus rapid transit (BRT) system in Johannesburg, South Africa. It funded the acquisition of 143 Scania buses from Brazil.

The deal marks BNDES’s first public sector deal in South Africa. The BRT system is the first of its type to be implemented in South Africa and across the African continent.

The City of Johannesburg wanted to modernise its public transport system, with the aim to ensure that those on lower incomes in South Africa could access public transport.

HSBC was brought in to discuss the potential BRT project as it has a successful track record in financing such schemes, including the Transantiago BRT in Chile and Mexico City’s Metrobus BRT.

Yet despite the proclaimed positive social impact of the bus system, closing the deal was not without its difficulties.
In Johannesburg there has been little historical investment in public transport. This is partly due to the legacy of the apartheid era where the poor were forced to live outside the city centres. Existing infrastructure and bus and minibus taxi fleets is inpoor condition.

Furthermore, 57.7% of travel in Johannesburg is dominated by minibus taxis, and these minibuses are frequently involved in accidents, due to drivers not obeying traffic laws and being paid on a per passenger basis, with the result being that they seek to maximise journey speeds.

The transport network in Johannesburg was in urgent need of upgrading, however at the same time, city officials had to ensure that the majority black-owned public transport industry remained in black ownership with no loss of earnings and improved working conditions for drivers.

Given these challenges, the closing of the deal was hindered by political rifts and outbreaks of violence.

Although the ANC and the South African Communist Party were both firmly behind the project, the Inkatha Freedom Party (IFP) and Democratic Alliance (DA) seized the opportunity to criticise the government’s handling of relations with the taxi operators.

The taxi industry also took part in violent protests, provoked by concern on the future security of their livelihoods.
There were two attempts to bring Johannesburg’s transport to a grinding halt, with a number of strikes and a number of shootings of drivers and passengers.

Despite the violence, public and press opinion was generally in favour of the project and condemned the taxi drivers’ actions.
“The fact that public opinion was incredibly supportive of the idea of creating an alternative to the minibus taxis was key,” comments Graham Smith, director, export credit and globalised specialised finance at HSBC.

“This enabled the local and national government to continue to push forward, but it also required HSBC assisting in writing briefings for the mayoral committee and providing workshops for the city politicians so that they felt they understood the risks of the project and how they could be mitigated.

“HSBC also met regularly with the national treasury and department of transport teams looking at BRTs across South Africa to ensure they were up to speed with the real developments and could brief ministers.”

The structure of the deal was based around a special purpose vehicle (SPV) formed by HSBC and Cliffe Dekker Hofmeyr, and designed specifically to overcome the political tensions surrounding the scheme.

Called Clidet 957, the SPV was put in place to secure the BNDES loan and operate the bus system until the city and taxi operators finalised their agreements on the bus operating contract.

The SPV was controlled by a trust until the taxi operators could take over ownership of the SPV.

This “SPV first” structure potentially opens up new means of financing for other city-sponsored BRTs, allowing cities to begin setting up a new transport system in advance of concluding talks with existing transport operators.

It was this structure that HSBC’s team is particularly proud of. “Creating the actual operating company – this enabled the project to get off the ground well in advance of the city closing the negotiations with the taxi associations – with the result that people with the lowest incomes in South Africa got access to a world class transport system sooner than anybody had believed possible,” comments HSBC’s Smith.