Präsentation zum Thema: "DEG – Deutsche Investitions- und Entwicklungsgesellschaft mbH"— Präsentation transkript:
1 DEG – Deutsche Investitions- und Entwicklungsgesellschaft mbH What do foreign DFI’s look at when investing in Nigeria –and how could Nigerian Lawyers get prepared to give them the right answers?Breakout Session of the SBL Conference – Banking, Finance and Insolvencyin Lagos, Nigeria, June 18th, 2013
2 PurposeRaise awareness/guidance for Nigerian lawyers dealing with international Developments Finance Institutions (DFI)Explain the growing role of DFIs and to highlight potential areas of collaborationAddress aspects and legal areas that matter for DFIsGet common sense between the Nigerian local counsel and its legal counterpart of a DFI
3 ContentSome aspects and figures concerning DFIs and their investment activitiesWhat are characteristic’s of a DFIWhat are their productsKey figures about European DFIsAspects relevant for DFIs as investorSome typical covenants/clauses in DFIs legal documents
4 DFI’s – Some Aspects DFIs are specialized financial institution and bridge the gap between commercial investments and State development aidare mostly unlisted entitiesare usually majority owned by national governments and come in two types (bilateral and multilateral (also known as IFIs)have a strong credit-worthiness as they source their capital from national or international development funds or benefit from government guaranteescan thus raise large amounts of funds on the international capital markets
5 DFI’s – Some Aspects DFIs mobilize private capital (from i.e. commercial banks, investment funds etc.) and often act in co-operation with governments and other organizationstypically invest in either public or private-sector projects (sometimes both) [Note: The private sector provides an estimated 90% of jobs in developing economies]finance rather high-risk projectshave a long-term approach to investments (less pressure to deliver short term results, better positioned to invest in countries that have high traditional risk ratings)
6 DFI’s – Some AspectsDFIs investments are mostly guided by three principles:the need to be additional (going where other investors don‘t)catalytic (paving the way for other investors to follow) andsustainable (making sure that investments have long-term viability)DFIs often catalyze significant amounts of investment from private investors who may not otherwise have invested in the country or in the project
7 DFI’s – Some Aspects DFIs provide funds, either as equity or quasi equityloans (including all types of mezzanine loans) orguaranteespromote responsible corporate governance and uphold social and environmental standards in their investmentsgenerate both positive development impact and good financial returns in a majority of their projects
8 DFI’s - Some Figures in 2011: €23.7 bln € invested in 4.421 projects Combined Investment Portfolio of only the European DFI’sin 2011: €23.7 bln € invested in projectsin 2010: €21.7 bln in projectsin 2009: €18.5 bln in projectsAcross low and middle income countries, Africa being the largest region with approximately 27% of the portfolio (there is an increasing focus on Africa)
9 DFIs - EDFI Association 15 members, office in BrusselsTotal portfolio 2011: EUR 23.7 billion (4.421 projects)New commitments 2011: EUR 4.8 billionGoals:Joint financing (larger amount of finance, risk sharing, efficiency gains)Harmonization: e.g. measuring developmental impacts, environmental and social standardsCooperation with the European Commission and its institutionsJoint venture and marketingStand: Oktober 2009
10 DFI’s – Some Aspects European Financing Partnership (EFP) an initiative among 12 EDFI members and the European Investment Bank (EIB)a limited liability company organised and existing under the laws of Luxembourgimplemented pursuant to the Framework Agreement for Financial Co-operation and Exchange of Services in the ACP countries signed by EIB, members of EDFI, AfD and KfW in January 2003operation is regulated by a Master Investment Agreement, which delegates full authority for investment decisions to an Investment Committee (composed of representatives from the institutions, which have committed funds to EFP)a Promoting Partner – any one of the EDFI members being shareholders – present funding proposals for projects located in the ACP states to the Investment Committee
11 DFI’s – Some Aspects European Financing Partnership (EFP) Once approved, the Investment Committee delegates authority to Promoting Partner to undertake due diligence, establish the legal contracts and monitor the project company on behalf of EFPInvestee company signs a legal contract with the Promoting Partner only and will thus communicate and report only to the Promoting Partner (which in turn is responsible for the monitoring and communication to EFP and the underlying partners funding the operationsauthorized Financial instruments are:Senior and mezzanine loans with a maximum maturity (interest rate, disbursement, repayment period, duration of grace period, type of currency, etc. will be structured according to project characteristics)Equity, Quasi-Equity andMedium to long-term guarantees with a maximum maturity and with an option and right to accelerate (guarantee fee, call and disbursement mechanisms, etc.) are structured according to project characteristics.
12 DFI’s – Some AspectsAfrican Financing Partnership (AFP) for private sector projects in Africaa collaborative, co-financing platform amongst 8 key DFI’s (AfDB, DBSA, DEG, EIB, FMO, IDC, IFC and Proparco)focused on private sector financing in Africaintended is the harmonization between these DFI financing projectsin 2009 they collaboratively financed projects such as Main One Cable in Nigeria; Helios Towers in Nigeria and various private equity fundsProjects to be submitted for co-financing through the AFP are expected to comply with each co-financing partner’s legal and policy requirements
13 Aspects relevant for DFIs as investor Retention of local legal counselto understand the legal and regulatory environmentto act as a guide and advisor throughout the due diligence / investment processimportant is experience in working with DFIs and “speaking the same language”Reputation and risk (Key area for DFIs, not only of the target company, but also of key officers, directors and owners)prior to formal due diligenceconducted locally, by someone with access to local sources and the cultural ability to interpret data found (in media reports, public records, through business associates)avoidance of corruption and unethical business practice is on DFIs top priority list for due diligencetransparency is key!is the country's’ government taken the fight against corruption seriously, and enforcement against such crimes as tax evasion and money laundering?corruption as an “very important” obstacle to private sector development
14 Aspects relevant for DFI’s as investor Avoidance of corrupt practices
15 Aspects relevant for DFI’s as investor Due Diligence MattersPolitical risksnot only politically unstable countries, but also where normal democratic procedures may bring about a change of government and thus a possible negative change in policy, for example, on tax, regulatory constraints and tariffs, etc.recent political and civil unrest in the Middle East highlights the political riskunquestionable nexus between business and politics (What is the probability of a disruption of operations due to political forces or events? What position has the ruling party taken with regard to foreign ownership or investment?)Investment ProtectionBilateral Investment Protection Treaty between the country of the investor and Nigeria?If not: Protection guaranteed by other means? By constitution?
16 Aspects relevant for DFI’s as investor Due Diligence MattersLegal and regulatory environmentimpact by regulatory trends, anticipated changes in the law or enforcement of existing laws on a target’s businesstarget in compliance with lawsHow well can the target weather the storm of evolving regulations?Are local laws pro-business or pro-labor?How are disputes commonly resolved?Recognition and enforcement of foreign judgmentsIs it possible to submit a loan agreement to foreign law?Will rulings by a foreign court be recognized and enforced in Nigeria?How does the investor enforce his “executive title”?Time of court proceedings, costsRecommendations with regard to local/foreign jurisdiction versus arbitration
17 Aspects relevant for DFI’s as investor Due Diligence MattersTax MattersTaxes (income tax, import or export duties) which effect foreign investmentsDoes the host government require to withhold taxes on interest payments to lenders? If so, what is the tax rate?What exemptions from taxation are available?Section 11 of the Nigerian Companies Income Tax Act allows an tax exemption for foreign loans depending on the respective repayment and grace periodsAre there restrictions or limitations on provisions to “gross-up” loan repayments to offset the effects of taxes or on provisions otherwise designed to neutralize the effects of such taxes?
18 Aspects relevant for DFI’s as investor Due Diligence MattersEnvironmental laws and regulations, Social Lawskey for DFIs (identification of material environmental conditions, risks and constraints)target companies may not always be aware of the full potential for liabilitysometimes lengthy bureaucratic process for environmental approvalsLabor/Employment matters (identification of key employees and retention risks)frequently unique to each countryoften review of any and all employment contracts or severance agreementsunion status and agreementspending or anticipated labor or employment litigationdocuments regarding employee benefits, work rules, compensation, and related terms and conditions of employment.
19 Aspects relevant for DFI’s as investor Due Diligence MattersFinancial Matters – Status of books and records (accounting and tax; if countries lack sound accounting and bookkeeping standards, efforts must be made to convert local records into GAAP or IFRS and how about “creative accounting”?)Intellectual Property (What does the target have rights to?)some legal and economic environment offers little or no protectionsometime the local laws provide that innovations are automatically owned by a licensee, not the licensor as is more typically the contractual norm
20 Aspects relevant for DFI’s as investor Due Diligence MattersReal Estate (locate the deeds and analyze them closely)deed and title statuspreexisting liens/other encumbrances depend on the complexity of the property lawtitle search vary from country to countryin some countries, direct ownership of land is not permitted, so it is essential to understand exactly what rights the target hasLease may include change of control or other restrictive languageBuildings also may not meet certain building codes, may fall outside of the boundaries of owned or leased property, or may otherwise pose a risk
21 Aspects relevant for DFI’s as investor Due Diligence MattersConclusionFind the “skeletons in the closet” (also senior management of the target entity might be unaware of their existence)reputation and transparency is keycorrupt practicespoor accounting [“creative”] and controlsenvironmental and social noncompliancecurrent or potential litigationsafety problemsdisgruntled employees or customerspoor maintenance and aging equipmentproduct quality issuesproblems with technology and intellectual property
22 Some typical covenants/clauses DFI Finance Agreements often address the following issuesinformation and investigation covenants [i.e. the right of the investor to visit a target company and the sites, installations and works comprising the projects and to conduct such checks as it may wish]covenants and representations as to environmental & social requirements’covenants to provide appropriate environmental and social reportsanti-money laundering and anti-corruption covenants and representationscovenants that the target company establishes and/or implements fair and transparent procurement procedures in order to ensure an appropriate selection of works, goods and services of an appropriate quality, at competitive prices, on terms negotiated on an arms length basis and in a timely mannercovenants to establish and maintain Corporate Governance Principles
23 Some typical covenants/clauses DFI Finance Agreements often address the following issuesExclusion of certain activities (such as production or trade in any product or activity deemed illegal under Nigerian laws or regulations or international conventions and agreements, or subject to international phase outs bans, such as hazardous pharmaceuticals, pesticides/herbicides, chemicals or production or trade in weapons and munitions etc.)Change of control clausesLegal and beneficial ownership clausesCompliance with laws and no improper illegal paymentsTermination eventssuch other clauses that a customarily for international finance transactions
24 Finally: Corporate Governance matters Because it improves investee companies’ performance and helps develop capital marketsBecause sound Corporate Governance reduces risk, adds value to investments, and avoids reputational risks for investorsStrong links between Good Corporate Governance and sustainable economic developmentImproving Corporate Governance practices has become an important element of the development mission of DFIs31 Financial Institutions signed in 2007 the “Approach Statement on Corporate Governance” and created a Working GroupThe Working Group has since developed the Corporate Governance Development Framework (“Framework”), a common methodology for assessing corporate governance in investee companies
25 Get in touch! Markus Gabbert General Counsel / Senior Director Legal / ComplianceDEG – Deutsche Investitions- undEntwicklungsgesellschaft mbHKämmergasse 2250676 KölnGermanyPhone: +49 (0) 2 21 / – 0Telefax: +49 (0) 2 21 / – 13 61Internet: