Mezzanine Loan Security Agreement

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     Infrastructure Experience in Lagos State
     Lekki Toll Road Concession

Opuiyo Oforiokuma                             Commonwealth Business Council /City of London
CEO/Managing Director                                              Infrastructure Workshop
                                                                London, 4th December 2008

About Lekki Concession Company

   LCC‟s mission is to provide high quality road infrastructure and
    related services along the Lekki Peninsular of Lagos, Nigeria,
    and to be recognized as the pioneer for change in the way road
    infrastructure is delivered throughout Nigeria

   LCC is currently executing Nigeria‟s first ever PPP Toll Road
    Concession, for which Financial Close has been achieved,
    including successfully securing a N46.4Bn long-term financing
    package on ground-breaking terms for Nigeria

   LCC is an initiative of the ARM Group, which has a broad-based
    ambition to develop major infrastructure projects throughout
    Nigeria and West Africa

   Macquarie Bank of Australia and Old Mutual of South Africa,
    through the African Infrastructure Investment Fund, are major
    shareholders in LCC

Lagos State – Overview
   Nigeria‟s former Political Capital (1960-1991)

   Lagos is a Megacity - one of the world‟s 20
    most populous cities & 2nd largest in Africa

   Population expected to reach 30 million by
    2025 – UN Projections

   Nigeria is fastest growing mobile cellular
    market in the world – Lagos is the epicentre

   Sizable informal sector, characterised by
    petty trading, masonry, public transport, etc

   Highest consumer market of petroleum                Lagos is Nigeria’s corporate, commercial &
    products in the country                               industrial centre … providing jobs for
   Over 70% of Lagos State‟s revenues are                people, taxes for the government and
    internally generated                                      entertainment to tourists …….

   Lekki Peninsular is the fastest growing             ….. Lagos it is a financially viable State ….
    growth corridor of Lagos

   Estimated 242 motor vehicles per square
    metre in Lagos metropolis

        How Nigerians Get Around

                  Road transportation is currently the primary source of mobility of Nigerians;
                  however, existing road networks are in poor condition and heavily congested

Source: 2006 article – “Revamping the Nigerian Railway”

Some Challenges With Nigeria’s Road Systems

   Chronic and historical underinvestment

   Inadequate or non-existent drainage systems, parking and
    other facilities

   Historical lack of maintenance, plus poor understanding of
    operation of road infrastructure / services

   Poor road discipline, bad driving skills/habits, ineffective law

   Overloading of vehicles

   Inappropriate use of and uncontrolled access to the Right-of-
    Way (eg, street trading, begging, markets, dumping refuse,
    unapproved developments, etc)
About Lekki Toll Road Concession

   30-year Public Private Partnership
    between Lagos State and LCC, to solve
    historical problems of heavy “go slow”
    along the Lekki-Epe Axis
   Project Summary
       Phase I - Expansion and upgrade of
        49.4km of Ozumba Mbadiwe Avenue/Lekki-
        Epe Expressway

       Phase II - Construction of 20km of Coastal
        Road, plus option to do the Southern

       Operation and maintenance of new road
        infrastructure over 30-year Concession

       N50Bn estimated project cost being
        financed by LCC, will be recovered
        principally through charging tolls

Key Benefits for Stakeholders

 Improvements will be made in:

                               Traffic decongestion, easier access to and from the
   Convenience                 Lekki-Epe corridor, breakdown and recovery assistance,
                               ambulance service, Customer Call Centre, etc

                                Shorter and more predictable journey times, reduced
   Journey Times
                                wear and tear on motor vehicles, reduced fuel
                                consumption by road users, etc

                                law enforcement, better street lighting, reduced risk of
   Safety & Security
                                “go slow robbery”, etc

 Other foreseeable key benefits for the Lekki-Epe corridor include creation of employment,
 support for continued and new business growth, and the underpinning of real estate values

     Unorthodox Financing Approach Adopted

     Partial scope of works:                                                Full scope of works:
     Focus on the1st 4Km of the project                              Phase I is 49.4Km of Lekki-Epe
     route. LCC financing supported by                         Expressway. Financing using long-tern
     N6.5 Billion Abridged Works                                  debt and equity sources secured at
     Guarantees pledged by Lagos State                                                financial close


                                                            MAIN WORKS PROGRAMME
                                                           (Supersedes Abridged Works)


   Parallel approach is unorthodox – would have preferred to secure the long-term financing
    required for the full Concession, before major construction works commenced
   However, parallel approach initially adopted by mutual agreement with Lagos State – needed
    to show visible progress of the works even ahead of financial close for the Main Works
   N6.5 Billion Abridged Works Guarantees provided by Lagos State was key enabler
   Financial close now achieved, and N11Bn 1st drawdown has occurred
 Structure at Financial Close (1)

         Mezzanine Lender                                                              Senior Lender


                                                                                       Senior Lender

   Sponsor/”Key Investor”                    Concessionaire

                               Shareholder                              Local Senior Lender Syndicate
                                                              Loans +
                               Equity +
Strategic Technical Investor                                  Standby

          EPCM Contractor

Structure at Financial Close (2)

   70 : 30 Debt-Equity Ratio

   Sovereign Guarantee in place covering Termination Scenario

   N5Bn 20-year Mezzanine Loan from Lagos State

   N33.5Bn total Senior Debt (including standby)

       Senior Debt tenors over 12-15 years – longest commercial debt
        tenors currently achieved in Nigerian market

       N11Bn of 15-year Senior Debt at fixed rates – a first for Nigeria

       15-year FX Hedge in place covering $85M AfDB Senior Loan
        ensures LCC assets and liabilities matched in local currency – first
        time AfDB able to effectively disburse in local currency

   Novel „Tied-in Equity‟ arrangement with EPCM Contractor – LCC
    exercised option to pay part of contract value in equity so as to align long
    term interest of Concessionaire and Contractor

Project “Bankability” Attracted Financing

      Lekki Toll Road Concession is a well-researched and
   structured project, backed by credible, experienced players

                            Committed Sponsors

      Concession                                      Turnkey D&C Contractor +
   & Project Manager                                  Maintenance

    Govt. Support
  & Commitment +                                            Legal &
 Enabling Legislation                                       Regulatory
 (2004 Lagos Roads                                          Expertise

                                                       Technical and Engineering
     Financial Structure                               *   Feasibility
      * Debt/Equity Mix                                *   EIA/SIA Studies
                              Financial Advisors
      * Tenor                                          *   Tolling Strategy
                                 & Arrangers
      * Currency                                       *   Surveys
                           (robust financial model)
                                                       *   Design

   “Report Card” – The Journey So Far

              Delivering major infrastructure in Nigeria does have its challenges ……. but

KEY CHALLENGE                                       PERFORMANCE REPORT

Political will questioned – doubts initially        State has consistently demonstrated strong
existed about Lagos State‟s willingness to          commitment to Lekki Toll Road Concession,
see things through to the end                       including investing N5Bn Mezzanine Finance in it

Getting the Sovereign Guarantee took a              Resolved in Feb 2008, with strong personal input
long time – “No FSA No Deal”                        from Lagos State Governor

Nigeria viewed as high risk; hence, initially       Financial close successfully achieved in Oct
proved difficult to attract capital at all, or on   2008 on ground-breaking terms for Nigeria
reasonable terms

High degree of skepticism initially about           1st 2km of the new road commissioned in March
LCC‟s ability to execute the project,               2008. Work on next 2km ongoing. Challenges
including about our EPCM Contractor – “it’s         still exist; however, working steadily through them
not possible” …. “Nigerian Factor” ….               with Lagos State‟s input

Government bureaucracy and „red tape‟               Challenges still exist; however, genuine efforts
can slow things down                                being made by Lagos State to remove bottlenecks

2008 Transport Deal of the Year Award Winner

                                      The Award is a credit to all the
                                      people, governments,
                                      organizations and institutions
                                      that worked together tirelessly
                                      over the years to transform the
                                      original dream behind the Lekki
                                      Toll Road Concession into the
                                      reality that it is today

                                      The Lekki Toll Road
                                      Concession is a living
                                      testament of what is now
                                      possible in Nigeria, and has
                                      already helped catalyze the
                                      increasing focus on the use of
                                      PPPs as the preferred model
                                      for road infrastructure
                                      financing and delivery
                                      throughout the country

Working Together to Make The Difference

Description: Mezzanine Loan Security Agreement document sample