dr. b.o. oramah critical issues in financing indigenous oil field services providers in africa...

Dr. B.O. OramahDr. B.O. Oramah

Critical Issues in Financing Indigenous Oil Critical Issues in Financing Indigenous Oil

Field Services Providers in AfricaField Services Providers in Africa

Director (Planning & Development Department)Director (Planning & Development Department)

African Export-Import Bank (Afreximbank)African Export-Import Bank (Afreximbank)

Cairo, EgyptCairo, Egypt

Director (Planning & Development Department)Director (Planning & Development Department)

African Export-Import Bank (Afreximbank)African Export-Import Bank (Afreximbank)

Cairo, EgyptCairo, Egypt

ByBy

Paper Presented at the 8Paper Presented at the 8thth African Oil Trade Conference African Oil Trade ConferenceMarrakech, MoroccoMarrakech, Morocco

April 26 – May 1, 2004April 26 – May 1, 2004

NOT AN OFFICIAL UNCTAD RECORDNOT AN OFFICIAL UNCTAD RECORD

Dr. B.O. Oramah – Critical Issues in Financing Indigenous Oil Field Services Providers in Africa - 2

INTRODUCTIONINTRODUCTION

• Afreximbank (Afreximbank (www.www.afreximbankafreximbank.com.com) has come a long way in bringing ) has come a long way in bringing

Structured Finance to Oil Field Services Financing in Africa. From 1998 Structured Finance to Oil Field Services Financing in Africa. From 1998

to 2003, total approvals to the Sector amounted to USD 385 million.to 2003, total approvals to the Sector amounted to USD 385 million.

• Prior to Afreximbank’s Structured Oil Field Services Financing Prior to Afreximbank’s Structured Oil Field Services Financing

Approach, Corporate Finance was the Instrument of Choice in Financing Approach, Corporate Finance was the Instrument of Choice in Financing

Operators in the Sector.Operators in the Sector.

• The consequence was that Oil Field Services remained under the control The consequence was that Oil Field Services remained under the control

of Large Multinationals.of Large Multinationals.


• The Sector remained an enclave with limited The Sector remained an enclave with limited

linkages to the rest of the domestic economies of linkages to the rest of the domestic economies of

African Oil Producers.African Oil Producers.

• In this Paper, I will share some of Afreximbank’s In this Paper, I will share some of Afreximbank’s

experience in facilitating indigenous participation in experience in facilitating indigenous participation in

the African Oil Sector through financiing indigenous the African Oil Sector through financiing indigenous

Oil Field Services Providers.Oil Field Services Providers.


2. 2. ACTIVITIES IN THE OIL SECTOR CAN BE BROADLY ACTIVITIES IN THE OIL SECTOR CAN BE BROADLY

CATEGORIZED INTO:CATEGORIZED INTO:

Upstream ActivitiesUpstream Activities

– ExplorationExploration

– Drilling and production of crudeDrilling and production of crude

Oil Field Services support the above activitiesOil Field Services support the above activities

Downstream ActivitiesDownstream Activities

– RefiningRefining

– Distribution and Sales Distribution and Sales


2.1 2.1 THE UPSTREAM SECTORTHE UPSTREAM SECTOR

2.1.12.1.1 Africa's StrengthsAfrica's Strengths

•• Africa is well endowed with oil and gas resources, accounting for about Africa is well endowed with oil and gas resources, accounting for about

10% of global oil production and 6.4% of reserves10% of global oil production and 6.4% of reserves

•• Africa also accounts for about 7% of global gas reservesAfrica also accounts for about 7% of global gas reserves

•• Increasingly higher quantities of oil and gas reserves are being found in Increasingly higher quantities of oil and gas reserves are being found in

Africa's deep and ultra deep offshore areas, especially in west Africa.Africa's deep and ultra deep offshore areas, especially in west Africa.

•• Africa produces high quality crude at competitive costsAfrica produces high quality crude at competitive costs

•• The physical production environment remains easier than in most other The physical production environment remains easier than in most other

major producing areasmajor producing areas


2.1.22.1.2 WeaknessesWeaknesses

•• Volatile oil pricesVolatile oil prices

•• Wars/ community disturbancesWars/ community disturbances

•• Environmental problemsEnvironmental problems

•• In many countries, unclear rules and regulations regarding award of In many countries, unclear rules and regulations regarding award of

ConcessionsConcessions

•• Over dependence on foreign technology and skillsOver dependence on foreign technology and skills

•• Political instabilityPolitical instability

•• Economic instabilityEconomic instability

•• Lack of FinanceLack of Finance


2.1.3 Prognosis2.1.3 Prognosis

• Despite the weaknesses, activity will continue to grow driven by:Despite the weaknesses, activity will continue to grow driven by:

– New technologies that have facilitated deep offshore activitiesNew technologies that have facilitated deep offshore activities

– Events in the Middle East that have accelerated geographic Events in the Middle East that have accelerated geographic

diversificationdiversification

– Strong Oil pricesStrong Oil prices

– Prolific nature of most basinsProlific nature of most basins

– Some policy support, e.g. Oil free zones in Nigeria and AngolaSome policy support, e.g. Oil free zones in Nigeria and Angola


•• Most activity in the near term, especially in West Africa, Most activity in the near term, especially in West Africa,

will be off - shore to avoid community problems and civil will be off - shore to avoid community problems and civil

strifes and due to huge discoveries already madestrifes and due to huge discoveries already made

•• Given higher cost of off - shore activity, financing Given higher cost of off - shore activity, financing

requirements will increaserequirements will increase

•• Movement to off - shore will require more logistics Movement to off - shore will require more logistics

support increasing the importance of oil field services.support increasing the importance of oil field services.


2.1.4 Major Oil Producers in Africa2.1.4 Major Oil Producers in Africa

Country

Actuala) Near Term Forecastb)

Proven Reserves (billion barrels)

Production (bpd)

Proven Reserves (billion

barrels)

Production (bpd)

1. Nigeria 31.5

1,800,170 342,350,00

0

2. Libya 36.0 1,200,300 n/a n/a

3. Angola 5.4 894,200 22.81,220,00

0

4. Algeria 11.3 735,100 n/a 1,500,00

0

5. Egypt 3.7 628,100 n/a n/a

6. Gabon 2.5 295,200 1.934 249,000

7. Congo Brazzaville 1.5 255,200 n/a n/a

8. Equatorial Guinea 1.1 231,000 n/a n/a

9. Others 3.1 651,250 n/a n/a

Total Africa 96.16,690,52

0

a) refers to 2002b) refers to EIU 2005 forecastn/a not availableSources: i) OPEC Annual Statistical Bulletin 2002 ii) EIU Country Profiles 2004


3.3. WHAT ARE OIL FIELD SERVICES?WHAT ARE OIL FIELD SERVICES?

3.1 3.1 Restrictively seen as Logistic Services - Marine Services, Provision of Restrictively seen as Logistic Services - Marine Services, Provision of

Facilities, Maintenance ServicesFacilities, Maintenance Services

3.23.2 Definition expanded (as Oil Industry evolved) to include Engineering, Definition expanded (as Oil Industry evolved) to include Engineering,

Drilling, Work - Over and other activities.Drilling, Work - Over and other activities.

Oil Services Market has enlarged as a result of:Oil Services Market has enlarged as a result of: Out-sourcing of most activities by ProducersOut-sourcing of most activities by Producers

Increasing importance of off - Shore ActivitiesIncreasing importance of off - Shore Activities

3.33.3 Accordingly Typical Project is executed with variety of contracts involving Accordingly Typical Project is executed with variety of contracts involving

Services (See Fig. 1)Services (See Fig. 1)


FIGURE 1FIGURE 1

OIL FIELD DEVELOPMENT PROJECT SHOWING TYPICAL OIL FIELD DEVELOPMENT PROJECT SHOWING TYPICAL

SERVICE CONTRACTS INVOLVEDSERVICE CONTRACTS INVOLVED

CONSTRUCTIONCONSTRUCTIONCONTRACTCONTRACT

PROJECTPROJECT

SPARES ANDSPARES ANDMATERIALSMATERIALSCONTRACTCONTRACT

O&MO&MCONTRACTCONTRACT

ServicesOwnership interestService Contracts awarded through JV Operator

PROJECT PROJECT OWNERS OWNERS


3.33.3 Typical Contracts are:Typical Contracts are:

• Those signed between Oil Producers (Oil Majors / Minors) and Those signed between Oil Producers (Oil Majors / Minors) and

Major oil field services companies, for example;Major oil field services companies, for example;

SchlumbergerSchlumberger

HalliburtonHalliburton

Baker Hughes, etceteraBaker Hughes, etcetera

• Contracts between Oil Producers and Minor Oil Service CompaniesContracts between Oil Producers and Minor Oil Service Companies

• Sub contracts between major service providers and minor Oil Sub contracts between major service providers and minor Oil

Service Providers.Service Providers.


3.43.4 Indigenization of Oil Field Services Business is Indigenization of Oil Field Services Business is

becoming a priority in some African Countries, such becoming a priority in some African Countries, such

as:as:• Nigeria where target is 30% indigenous participation. A Cabbotage Nigeria where target is 30% indigenous participation. A Cabbotage

Law (with Cabbotage Fund) has been enacted to ensure, among Law (with Cabbotage Fund) has been enacted to ensure, among

others, more indigenous participation in Marine Services.others, more indigenous participation in Marine Services.

• Angola where goal appears to be 10%Angola where goal appears to be 10%

• Egypt where Egyptian Drilling Company (JV between EGPC and Egypt where Egyptian Drilling Company (JV between EGPC and

Maersk) does most drilling workMaersk) does most drilling work

3.53.5 Goal is to capture huge amounts of money paid Goal is to capture huge amounts of money paid

to Service Providers and integrate the Oil Sector to Service Providers and integrate the Oil Sector

with the Overall Economywith the Overall Economy


4.4. OIL FIELD SERVICESOIL FIELD SERVICES

4.1 4.1 The Oil Field Services market is therefore segmented into three categoriesThe Oil Field Services market is therefore segmented into three categories

i.i. Major playersMajor players

ii.ii. Minor playersMinor players

iii.iii. Indigenous contractorsIndigenous contractors

• Entities in category (i) do not have major financing problems since they can raise Entities in category (i) do not have major financing problems since they can raise

money in their name (Corporate Finance)money in their name (Corporate Finance)

• Category (ii) entities are to some extent adequately covered financiallyCategory (ii) entities are to some extent adequately covered financially

• Financing is principally a major problem of category (iii) companies (Indigenous Financing is principally a major problem of category (iii) companies (Indigenous

Contractors).Contractors).


4.2 4.2 Xteristics of Indigenous Oil Services CompaniesXteristics of Indigenous Oil Services Companies• small size of capital (USD 1 million or less), except a few in Nigeria small size of capital (USD 1 million or less), except a few in Nigeria

that have grown significantly in size, e.g. the Adamac Groupthat have grown significantly in size, e.g. the Adamac Group

• firms with limited experience in oil field servicesfirms with limited experience in oil field services

• have no or limited borrowing track recordhave no or limited borrowing track record

• corporate structure sometimes confusingcorporate structure sometimes confusing

• small players with annual revenues of less than USD 5 millionsmall players with annual revenues of less than USD 5 million

• usually require financing far in excess of equity capitalusually require financing far in excess of equity capital

• loan required usually of medium term nature as main use of loan is to loan required usually of medium term nature as main use of loan is to

acquire equipment for contract executionacquire equipment for contract execution


4.3 4.3 The Critical Issues in Financing Indigenous Companies Therefore The Critical Issues in Financing Indigenous Companies Therefore

Revolve Around How To Deal With:Revolve Around How To Deal With:

a)a) Their Low capitalizationTheir Low capitalization

b)b) Limited experienceLimited experience

c)c) No borrowing track record and therefore no credible banking No borrowing track record and therefore no credible banking

relationshipsrelationships

d)d) Their Highly specialized assets with limited secondary market.Their Highly specialized assets with limited secondary market.

The above factors mean that pure corporate Finance will be difficultThe above factors mean that pure corporate Finance will be difficult

Resort to local bank financing is constrained by lack of medium term Resort to local bank financing is constrained by lack of medium term

funding in many marketsfunding in many markets


4.4 4.4 Structured Financing by international banks is difficult also due to:Structured Financing by international banks is difficult also due to:

a)a) Small size of deals (usually USD5 - 10 million) and therefore returns do not Small size of deals (usually USD5 - 10 million) and therefore returns do not

justify the trouble.justify the trouble.

b)b) Small size of company puts company at a disadvantage when negotiating Small size of company puts company at a disadvantage when negotiating

contract with majors. Thus, contracts may carry onerous clauses.contract with majors. Thus, contracts may carry onerous clauses.

c)c) Required funding of medium term nature meaning that international Required funding of medium term nature meaning that international

banks may provision for exposure.banks may provision for exposure.

d)d) Companies unfamiliar with international financing making structuring Companies unfamiliar with international financing making structuring

work difficult.work difficult.


e)e) Contract counterparties usually reluctant to assist in putting Contract counterparties usually reluctant to assist in putting

structure in place; for example, Many may refuse to structure in place; for example, Many may refuse to

acknowledge assignments of contract or simple letters of acknowledge assignments of contract or simple letters of

instruction.instruction.

f)f) Operations usually not well diversified to enable banks to Operations usually not well diversified to enable banks to

diversify their risk.diversify their risk.

g)g) Due to their small size some are not able to buy adequate Due to their small size some are not able to buy adequate

insurance to cover the risks in the business or to structure insurance to cover the risks in the business or to structure

their operation to mitigate such risks; for example, certain their operation to mitigate such risks; for example, certain

vessels may incur liabilities that can bankrupt the firm.vessels may incur liabilities that can bankrupt the firm.


5.5. In Realization Of The Problems These Companies Face, In Realization Of The Problems These Companies Face,

Afreximbank Designed Special Means Of Supporting Them Afreximbank Designed Special Means Of Supporting Them

Hinged on a “TOTAL APPROACH”.Hinged on a “TOTAL APPROACH”.

To Deal With the Challenges Identified, Instruments used include:To Deal With the Challenges Identified, Instruments used include:

Advisory services aimed at corporate reorganization and Advisory services aimed at corporate reorganization and

preparing borrowers to enter loans market preparing borrowers to enter loans market

Structured Finance to mitigate Corporate Finance Risks.Structured Finance to mitigate Corporate Finance Risks.

Risk bearing support.Risk bearing support.


The Bank’s Experience Has Been That:The Bank’s Experience Has Been That:

a)a) THE UNDERLYING BUSINESS IS BANKABLE IF FINANCING IS THE UNDERLYING BUSINESS IS BANKABLE IF FINANCING IS

WELL DESIGNEDWELL DESIGNED

b)b) SUPPORTING THE COMPANIES HELPS IN CREATING SUPPORTING THE COMPANIES HELPS IN CREATING

INDIGENOUS CAPACITY IN THE OIL INDUSTRY AND HELPS INDIGENOUS CAPACITY IN THE OIL INDUSTRY AND HELPS

PROMOTE THE GOALS OF GOVERNMENTS OF AFRICAN OIL PROMOTE THE GOALS OF GOVERNMENTS OF AFRICAN OIL

PRODUCING COUNTRIES.PRODUCING COUNTRIES.

c)c) THE BANK'S INTERVENTION USUALLY HELPS IN BETTER THE BANK'S INTERVENTION USUALLY HELPS IN BETTER

CONTRACT THERMS NEGOTIATED WITH PRODUCERS.CONTRACT THERMS NEGOTIATED WITH PRODUCERS.


d)d) THE TRANSACTIONS MOST TIMES GENERATE SPIN-THE TRANSACTIONS MOST TIMES GENERATE SPIN-

OFF BUSINESS FROM OIL MAJORS.OFF BUSINESS FROM OIL MAJORS.

e)e) THE BANK’S TENACIOUS SUPPORT HAS HELPED TO THE BANK’S TENACIOUS SUPPORT HAS HELPED TO

ATTRACT OTHER INTERNATIONAL BANKS TO ATTRACT OTHER INTERNATIONAL BANKS TO

FINANCING SUCH ACTIVITIES. ACCORDINGLY, THE FINANCING SUCH ACTIVITIES. ACCORDINGLY, THE

BANK HAS BEGUN A MAJOR ACTIVITY OF BANK HAS BEGUN A MAJOR ACTIVITY OF

SYNDICATING SUCH DEALS.SYNDICATING SUCH DEALS.


FIGURE 2FIGURE 2

SECURED DIRECT LENDINGSECURED DIRECT LENDING

LendingLendingBankBank

3.

Dis

bu

rsem

en

t3.

Dis

bu

rsem

en

t 5. Repayment of principal and

5. Repayment of principal and

interest

interest

1. Service Contract1. Service Contract

4. Performance of Contract4. Performance of ContractContractorContractor ProducerProducer

2.

Assig

nm

en

t of

2.

Assig

nm

en

t of

Con

tract

Pro

ceed

sC

on

tract

Pro

ceed

s

6. 6. FINANCING STRUCTURES IN SUPPORT OF THE SECTORFINANCING STRUCTURES IN SUPPORT OF THE SECTOR


Key Features:Key Features: BANK ASSUMES PERFORMANCE RISK OF COMPANY AND PAYMENT BANK ASSUMES PERFORMANCE RISK OF COMPANY AND PAYMENT

RISK OF PRODUCERRISK OF PRODUCER

TRANSACTION HINGED ON DEMONSTRATED TRACK RECORD OF TRANSACTION HINGED ON DEMONSTRATED TRACK RECORD OF

COMPANY OR A TECHNICAL PARTNERSHIPARRANGEMENT WITH A COMPANY OR A TECHNICAL PARTNERSHIPARRANGEMENT WITH A

REPUTABLE CONTRACTORREPUTABLE CONTRACTOR

CONTRACT BEING BINDING, LONG ENOUGH AND ENFORCEABLECONTRACT BEING BINDING, LONG ENOUGH AND ENFORCEABLE

CLEAR INVOICING MECHANISMSCLEAR INVOICING MECHANISMS

IN MANY INSTANCES, THE BANK FURTHER SUPPORTS THE FACILITY IN MANY INSTANCES, THE BANK FURTHER SUPPORTS THE FACILITY

USING LOCAL BANK GUARANTEES (SEE FIGURE 3)USING LOCAL BANK GUARANTEES (SEE FIGURE 3)


FIGURE 3FIGURE 3

LENDING WITH PAYMENT GUARANTEELENDING WITH PAYMENT GUARANTEE

LendingLendingBankBank

GuarantorGuarantor b)b)

(Local bank)(Local bank)

4.

Dis

bu

rsem

en

t4.

Dis

bu

rsem

en

t2. Guarantee (which may or 2. Guarantee (which may or may not be collateralized)may not be collateralized) a)a)

a) Securities taken include depositing of short-term treasury bills, partial cash collateral etc.

b) Guarantee may be per aval.

a) Securities taken include depositing of short-term treasury bills, partial cash collateral etc.

b) Guarantee may be per aval.



interest

interest


5. Performance of Contract5. Performance of ContractContractorContractor ProducerProducer

3.

Assig

nm

en

t of

3.

Assig

nm

en

t of

Con

tract

Pro

ceed

sC

on

tract

Pro

ceed

s


FIGURE 4FIGURE 4MITIGATING PERFORMANCE RISK:MITIGATING PERFORMANCE RISK:

OIL SERVICE INVOICE DISCOUNTINGOIL SERVICE INVOICE DISCOUNTING

Afreximbank Oil Service Invoice Discounting ProcessAfreximbank Oil Service Invoice Discounting Process

Oil ServiceOil ServiceCompanyCompany

Oil MajorOil Major(Service user)(Service user)

6.

Pu

rch

ase o

f6.

Pu

rch

ase o

fIn

voic

eIn

voic

e(p

rep

aym

en

t)(p

rep

aym

en

t)


• This Assists Contractors In Bridging Liquidity GapsThis Assists Contractors In Bridging Liquidity Gaps• This Assists Contractors In Bridging Liquidity GapsThis Assists Contractors In Bridging Liquidity Gaps

6. Purchase of Invoice (prepayment)6. Purchase of Invoice (prepayment)

2. Approval2. Approval

Local BankLocal Bank(Guarantor)(Guarantor)

AfreximbankAfreximbank

2.

Ap

pro

val

2.

Ap

pro

val

3. Performs Contract and Invoices3. Performs Contract and Invoices

4. Accepts Invoice (Confirmation of Receipt of 4. Accepts Invoice (Confirmation of Receipt of Service) and acknowledges Sale of invoice to Service) and acknowledges Sale of invoice to

Afreximbank (“Documents”)Afreximbank (“Documents”)

5.

Docu

men

ts5.

Docu

men

ts

5. Documents5. Documents

7.

Paym

en

t7.

Paym

en

t


7.7. DEALING WITH CERTAIN RISKS/ PROBLEMSDEALING WITH CERTAIN RISKS/ PROBLEMS

7.17.1 Performance RiskPerformance Risk

MitigantMitigant

Use local bank with experience in oil services financing to assess and mitigate Use local bank with experience in oil services financing to assess and mitigate

riskrisk

Producers do a thorough assessment of capability of Contractors so check Producers do a thorough assessment of capability of Contractors so check

with themwith them

Focus on those companies with good technical partnersFocus on those companies with good technical partners

Afreximbank has gained good experience in proper analysis of such risksAfreximbank has gained good experience in proper analysis of such risks

Restrict lending to invoice discountingRestrict lending to invoice discounting


7.27.2 Community Disturbances / Civil StrifeCommunity Disturbances / Civil Strife

MitigantMitigant In Angola and Nigeria where these used to be rife, things are subsidingIn Angola and Nigeria where these used to be rife, things are subsiding

In some service contracts, this risk is retained by the Producers.In some service contracts, this risk is retained by the Producers.

7.37.3 Premature Contract Termination Not Caused By Contractor Non-Premature Contract Termination Not Caused By Contractor Non-

PerformancePerformance

MitigantMitigant In many Service Contracts In many Service Contracts “Early Termination Clauses”“Early Termination Clauses” ensure that the Producers retain ensure that the Producers retain

the risk.the risk.

Take insurance.Take insurance.


7.47.4 Difficulty In Obtaining Acknowledgement of Contract Assignments by ProducersDifficulty In Obtaining Acknowledgement of Contract Assignments by Producers

MitigantMitigant Not a generalized problem. However, Direct approach to Producer helps.Not a generalized problem. However, Direct approach to Producer helps.

7.57.5 High Documentary TaxesHigh Documentary Taxes

MitigantMitigant In many of the countries, Afreximbank’s tax/ duty exempt status is being honoured so it makes In many of the countries, Afreximbank’s tax/ duty exempt status is being honoured so it makes

sense to partner with Afreximbank.sense to partner with Afreximbank.

7.67.6 Country RiskCountry Risk

MitigantMitigant Use Afreximbank’s Country Risk Guarantee Facility.Use Afreximbank’s Country Risk Guarantee Facility. Use other PRI Providers.Use other PRI Providers.


8.8. ISSUES TO NOTE AS YOU STRUCTURE YOUR DEALISSUES TO NOTE AS YOU STRUCTURE YOUR DEAL

Many Service Contracts are not assignable – Proceeds of the Contracts areMany Service Contracts are not assignable – Proceeds of the Contracts are

Understand Nature of Contract, i.e.:Understand Nature of Contract, i.e.: Its termIts term

Termination clausesTermination clauses

What is considered a satisfactorily completed serviceWhat is considered a satisfactorily completed service

How payments will be made:How payments will be made:

• Day-rate (minimum and escalation)Day-rate (minimum and escalation)

• Milestones (what are they and are any third party actions required before milestone completion is Milestones (what are they and are any third party actions required before milestone completion is

confirmed?)confirmed?)

• Community disturbance clausesCommunity disturbance clauses

• Force Majeure clauses, etc.Force Majeure clauses, etc.

• What insurance obligations are to be borne by ContractorWhat insurance obligations are to be borne by Contractor

• Environmental issuesEnvironmental issues


Producers can delay payment so build knowledge of Producers can delay payment so build knowledge of

historical delays in arriving at tenorhistorical delays in arriving at tenor

Agree with Contractor on Issuing Invoices promptly. For Agree with Contractor on Issuing Invoices promptly. For

some Producers, Invoice tracking can be done on-line by some Producers, Invoice tracking can be done on-line by

subscription.subscription.


8.8. Bringing Other International Banks In Support of the Sector – Bringing Other International Banks In Support of the Sector –

Afreximbank’s RoleAfreximbank’s Role

8.18.1 Dealing with Country RiskDealing with Country Risk


Figure 5Figure 5 AFREXIMBANK COUNTRY RISK GUARANTEE FACILITY - FLOW OF AFREXIMBANK COUNTRY RISK GUARANTEE FACILITY - FLOW OF

TRANSACTIONSTRANSACTIONS

Exposure ExtinguishedExposure Extinguished

AFREXIMBANK interventionAFREXIMBANK interventionas risk mitigantas risk mitigant

Cause of Non‑reimbursement is Cause of Non‑reimbursement is determined and risk is shareddetermined and risk is shared

Afreximbank is dischargedAfreximbank is dischargedLenders pursue security from BorrowerLenders pursue security from Borrower

AFREXIMBANK reimburses covered portion to LenderAFREXIMBANK reimburses covered portion to Lender and pursues and pursues reimbursement with country concerned inreimbursement with country concerned in accordance with Bank accordance with Bank

Membership AgreementMembership Agreement

On recovery of repayment, Lending bank is On recovery of repayment, Lending bank is reimbursed the uncovered balance, less reasonable reimbursed the uncovered balance, less reasonable costs incurred by Afreximbank in pursuing recoverycosts incurred by Afreximbank in pursuing recovery

Risk Period for lending bankRisk Period for lending bank

NoNo

YesYes

NoNo

YesYes

At maturity, International bank isAt maturity, International bank isreimbursed by obligorreimbursed by obligor

At maturity, International bankAt maturity, International bankis reimbursed by obligor ?is reimbursed by obligor ?

Non‑reimbursement caused by commercial risk (credit,Non‑reimbursement caused by commercial risk (credit, documentary/administration risks and fraud) events, force documentary/administration risks and fraud) events, force

majeure and/or certain country risk eventsmajeure and/or certain country risk eventsYesYes

Afreximbank is dischargedAfreximbank is dischargedLenders pursue security from BorrowerLenders pursue security from Borrower

Afreximbank providesAfreximbank providescover against certain country riskcover against certain country risk

eventsevents

International bank assumes paymentInternational bank assumes payment risk of risk of an African entity (through L/Can African entity (through L/C issuance/ issuance/ confirmation or other formsconfirmation or other forms of financingof financing

YesYes

YesYes

NoNoNon‑reimbursement caused by certain country risk events (exchange. Non‑reimbursement caused by certain country risk events (exchange.

control regulations, moratorium on debt payment, change in law or control regulations, moratorium on debt payment, change in law or policy affecting the timing, currency or manner of debt paymentpolicy affecting the timing, currency or manner of debt payment


8.28.2 Dealing with Lack of Experience and Local KnowledgeDealing with Lack of Experience and Local Knowledge

Afreximbank has begun to leverage its proven track record and knowledge of the Sector and Markets to arrange syndicated deals in support of the Sector,Afreximbank has begun to leverage its proven track record and knowledge of the Sector and Markets to arrange syndicated deals in support of the Sector,

• Syndicated Deals Concluded = USD 180 millionSyndicated Deals Concluded = USD 180 million

• Syndicated Deals in Pipeline = USD 80 millionSyndicated Deals in Pipeline = USD 80 million

8.38.3 Extending the Frontier with its Innovative GASON Debuting in Nigeria (Figure 6)Extending the Frontier with its Innovative GASON Debuting in Nigeria (Figure 6)


Credit Enhancement*Credit Enhancement*(Lloyds / AfricaRe (Lloyds / AfricaRe

AFREXIM)AFREXIM)

FIGURE 6FIGURE 6 GUARANTEED AFREXIMBANK-BACKED SECURITIZED OIL SERVICE NOTES GUARANTEED AFREXIMBANK-BACKED SECURITIZED OIL SERVICE NOTES

(GASON)(GASON)

LENDERS (INTERNATIONAL BANKS)LENDERS (INTERNATIONAL BANKS)

OIL SERVICE COs.OIL SERVICE COs.

OIL MAJORSOIL MAJORS(SUBSIDIARIES)(SUBSIDIARIES)

ESCROW A/CESCROW A/C

1.C

ontr

act

1.C

ontr

act

AFREXIMBANKAFREXIMBANKLender of RecordLender of Record

QUALIFIED LOCAL BANKSQUALIFIED LOCAL BANKS(BORROWERS)(BORROWERS)

2. Secu

rity /

2. Secu

rity /

Assignmen

t

Assignmen

t

2. Acknowledgement2. Acknowledgement

Rec

ours

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ecou

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Gu

aran

tee

Gu

aran

tee

(Per

Ava

l)(P

er A

val)

2. R

isk

2.

Ris

k

Par

tici

pat

ion

P

arti

cip

atio

n

Agr

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ent

Agr

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ent

2. L.O.C**2. L.O.C**

3. F

un

din

g3.

Fu

nd

ing

On

-Len

din

gO

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end

ing

4. Oil F

ield

4. Oil F

ield

Services

Services

5. C.W.D***5. C.W.D***

6.

6.

Rep

aym

ent

Rep

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ent

* May include Country Risk and Performance Risk * May include Country Risk and Performance Risk GuaranteesGuarantees

** Letter of Comfort** Letter of Comfort*** Certificate of Work Done or Accepted Invoices*** Certificate of Work Done or Accepted Invoices

* May include Country Risk and Performance Risk * May include Country Risk and Performance Risk GuaranteesGuarantees

** Letter of Comfort** Letter of Comfort*** Certificate of Work Done or Accepted Invoices*** Certificate of Work Done or Accepted Invoices


Key Advantages of Deal In Figure 6Key Advantages of Deal In Figure 6

Lenders benefit from Afreximbank’s preferred Lenders benefit from Afreximbank’s preferred

Creditor Status.Creditor Status.

Lenders benefit from knowledge of domestic Lenders benefit from knowledge of domestic

originator banks.originator banks.

Lenders benefit from a second way out comprising of Lenders benefit from a second way out comprising of

a diversified pool of local banks with strong oil service a diversified pool of local banks with strong oil service

financing capabilities.financing capabilities.


Local banks are able to increase oil service lending by Local banks are able to increase oil service lending by

freeing their capital.freeing their capital.

Contractors benefit from cheaper and matching Contractors benefit from cheaper and matching

currency funding.currency funding.

Country benefits from greater indigenous Country benefits from greater indigenous

participation in the sector by operators and local participation in the sector by operators and local

banks.banks.


9.9. ABOUT AFREXIMBANKABOUT AFREXIMBANK Established in 1993 as a Established in 1993 as a

multilateral financial institutionmultilateral financial institution

Shareholders include African Shareholders include African

governments, African private governments, African private

investors and non African investors and non African

investors.investors.

Authorized capital = US$750 Authorized capital = US$750

millionmillion

Mandated to finance intra and Mandated to finance intra and

extra-African tradeextra-African trade

Headquartered in EgyptHeadquartered in Egypt

Branch offices in Abuja, Tunis Branch offices in Abuja, Tunis

and Harareand Harare


OPERATES FOLLOWING PROGRAMMES:OPERATES FOLLOWING PROGRAMMES:1.1. LINE OF CREDIT;LINE OF CREDIT;

2.2. DIRECT FINANCING;DIRECT FINANCING;

3.3. SYNDICATIONS;SYNDICATIONS;

4.4. PROJECT RELATED FINANCING;PROJECT RELATED FINANCING;

5.5. EXPORT DEVELOPMENT FINANCE PROGRAMMEEXPORT DEVELOPMENT FINANCE PROGRAMME

6.6. INVESTMENT BANKING; ANDINVESTMENT BANKING; AND

7.7. SPECIAL RISK PROGRAMMES, INCLUDING SPECIAL RISK PROGRAMMES, INCLUDING

COUNTRY RISK GUARANTEE FACILITYCOUNTRY RISK GUARANTEE FACILITY

8.8. ALSO OFFERS FORFAITING FACILITYALSO OFFERS FORFAITING FACILITY

CUMULATIVE APPROVALS SINCE 1994 TO DECEMBER 2003 = CUMULATIVE APPROVALS SINCE 1994 TO DECEMBER 2003 =

US$6.68 BILLIONUS$6.68 BILLION


10.10.CONCLUSIONSCONCLUSIONS

dr. b.o. oramah critical issues in financing indigenous oil field services providers in africa...

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