NIGERIAN ACQUSITION FINANCING
Raising Capital - Maximizing Demand
SITUATION
A US$2.45 Billion acquisition financing of an Oil & Gas asset in Nigeria that had its financial close in 12/18. The buyer was a Nigerian businessman looking to take advantage of significant tax breaks made available through a Nigerian government initiative to increase local ownership and expand production.
This is a classic case of a strong asset in a challenging jurisdiction. A complex combination of capital raisings where needed as traditional investor demand was insufficient. The greatest issue was to create products and an enticing story to build sufficient demand given the perceived country risk.
SOLUTION
The goal, to ensure the non-equity capital raise (of US$2 Billion) could be achieved. The solution was one built on creating Facilities/Tranches designed to appeal to a specific type of investor to maximise demand and then focus on critical anchor investors in those investment vehicles. The end structure involved no less than 3 senior debt tranches and five facilities overall which as it was unfamiliar required significant education and familiarization to be accepted.
The ultimate success of the capital raise was an indication this strategy was effective.
APPROACH
The key to the transaction involved several factors:
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Exceptionally low-cost lifting rates
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Day one cash flow with significant and realistic growth potential
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A strong sponsor with excellent credentials
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A co-sponsor with all the critical technical skills necessary
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Facilities/Tranches that appealed to investor needs
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A structure designed to assure sufficient lender control and cash visibility. Thereby increasing the probability of investor repayment
The two most important parts of the structure were creating a senior facility that could maximize the asset value available but not overwhelm the structure with excess cash demands as traditional bank lending would. The TL A/B structure put in place while commonplace had never been attempted in Nigeria and faced traditional lender resistance due to unfamiliarity. Creating a quasi-equity structure that would attract financial investors concerned that pure equity would not provide an exit route was equally challenging. What was used was effectively a bond + royalty structure that won over investors.
OUTCOME
The transaction financing closed in 12/18 fully subscribed and with strong anchor support in every facility.
