Addis – FrontPageAfrica has reliably learnt that stringent international best practice internal banking regulations and procedures that governs the extension of trade and asset-backed financing at the African Export-Import Bank (Afreximbank or the Bank), one of two financial institutions listed by the construction firm, EBOMAF in its agreement with Liberia, is likely to extend well beyond the fifty-day mark for the requested financing of US$420 million for the construction of 323.7 kilometers of roads in Liberia.
Report by Rodney D. Sieh, [email protected]
EBOMAF also listed the ECOWAS Bank for Investment and Development as a potential source of its funding for the roads.
Additionally, the requested amount, may be way above the limit that the financial institution may be able to extend to a single borrower under the terms of Ebomaf’s agreement with the Government of Liberia.
The authorized share capital of the Bank is Five Billion United States Dollars (US$5 billion), less than ten percent of the US$420 million EBOMAF is requesting on behalf of the Liberia loan.
Afreximbank is a supranational institution that operates as a trade finance bank (profit-oriented institution), lending is very short term with loans having an average maturity of about 3 months. Based on the Bank’s 2016 annual report, the bank disbursed a total amount of 12,031.2 Million US$ broken down as follows: Line of credit – 8,008 US$; Direct Financing -1,934.5 US$; Project and Export Development financing 70.00; Syndications – 1,968.7 US$; Future Flow Financing- 50.00; Country programme- 366.0.
In 2016, the Bank approved US$ 70 million under the Project Financing Programme, down from US$ 245.42 million in 2015, accounting for about 0.58 percent of total approvals. Outstanding loans decreased to US$ 122.05 million in 2016 from US$ 147.09 million in 2015, with the programme accounting for 1.18 percent of the total loans portfolio at the end of the year.
Limited Options for EBOMAF
The bank currently has a few options that EBOMAF will likely explore but even those come with strings to international best practice procedures.
Under the bank’s Export Development Programme, the financial institution combines credit, risk bearing, twinning, market access, and advisory services geared towards creating non‑commodity export products for sale to a broad range of export markets. Through this programme, the Bank aims to facilitate non‑commodity export production, especially export manufacturing, and to foster the implementation of regional projects, including tradable infrastructure services. In 2016, the Bank set up and staffed an Export Development Department to implement the Bank’s Industrialisation and Export Development Strategy. No credit was approved under the programme during 2016.
Under its Syndications Programme, the bank offers a risk‑sharing used by the Bank to leverage international financing in support of trade‑ and project‑related activities across the continent. Under this programme, the Bank arranges or joins a syndicate or club of reputable international and/or African banks to provide financing to African entities.
Approvals under this programme rose to US$ 1,968.73 million in 2016, up from US$ 921.87 million in 2015, accounting for 16.36 percent of total approvals. Outstanding loans under the programme increased by 61.32 percent from US$ 1.90 billion in 2015 to US$ 3.07 billion in 2016. The programme accounted for 29.79 percent of the total loans portfolio at end of year
Under the financial future‑flow transactions, debt offerings rely for their repayment, upon receivables not generated from the export of physical goods. Such receivables include credit card or cheque receivables, tourism receivables, migrant remittances, royalties arising from bilateral air services agreements, overflight fees, etc.
Under this program, the Bank approved US$ 49.99 million under the Future Flows Pre‑Financing Programme in 2016 compared with US$ 150 million in 2015. Outstanding loans under the programme stood at US$ 303.73 million in 2016, accounting for 2.94 percent of the Bank’s loan portfolio
Under the Asset‑Backed Lending Programme which serves the growing demand by African entrepreneurs for financing to acquire physical assets within the framework of privatisation and local‑content‑promotion opportunities, assets can serve as sound collateral, as their values are normally expected to rise with inflation.
Asset-Backed Lending Probable, But…
FrontPageAfrica has gathered that EBOMA’S requested financing to Afreximbank as per its nature is likely to fall under the Asset Back Lending category consisting of long-term financings with tenor of up to seven years, whereby the bank finances the purchase of equipment or raw material needed usually for export-related industries but also for infrastructures-related enterprises. However, based on the 2016 bank’s annual report and past transactions the bank has not loaned any amount for that category in 2016 and as a matter of fact had an average loan amount per transaction of about US$200 Millions for the other categories, making highly improbable that the bank will extend a financing of 420 Million US$ to EBOMAF.
The Bank was established under the twin constitutive instruments of an Agreement signed by member States and multilateral organizations, and which confers on the Bank the status of an international multilateral organization; as well as a Charter, governing its corporate structure and operations, signed by all Shareholders
The Bank, headquartered in Cairo, the capital of the Arab Republic of Egypt, commenced operations on 30 September 1994, following the signature of a Headquarters Agreement with the host Government in August 1994. It has branch offices in Harare, Abuja, Abidjan and Nairobi.
The Bank’s day-to-day operations are governed by its Charter which conforms with international best practice in governance matters with the African Development Bank serving as a member of its board.
The Pan-African Multilateral financial institution has developed a documented AML policy with related procedures to adequately address potential money laundering and terrorist financing risks. The Bank’s policy and procedures were considered and approved by the Executive Committee (EXCO) of the Board of Directors, and the documents are being amended from time to time taking into consideration the growing trends in money laundering and terrorist financing, as well as, the sophisticated nature of these crimes.”
Eboman is managed by Mr. Mahamadou Bonkoungou, the wealthy Burkinabe businessman, who President George Manneh Weah recently acknowledged as his friend,
According to the loan agreement between the company and Liberia, the construction is expected to cover the pavement of 323.7 km roads including the Somalia Drive via Kesselley Boulevard to Sinkor in Monrovia -16km, Tappita to Zwedru in Nimba and Grand GedehCounties and from Toe Town in Grand Gedeh County to Ivory Coast Border-10.2km road. It includes the 185km road from Zwedru in Grand Gedeh County to Greenville in Sinoe County.
Bank Offers Hope for EBOMAF, But…
Last October, just about the time Liberia was preparing to head to the presidential elections, Mr. Bonkoungou paid a visit to the Afreximbank’s bank’s Cairo headquarters in a bid to explore opportunities for collaboration toward Africa’s economic development.
Mr. Bonkoungou, according to the bank’s website told Afreximbank President Dr. Benedict Oramah that the EBOMAF Group was involved in construction, aircraft charter services, hotels, agro-allied industry and factory operations.
Mr. Bonkoungou said that EBOMAF had contracts for several projects in Benin, Burkina Faso and Cote d’Ivoire for which it would welcome collaboration with Afreximbank.
It is unclear how far that collaboration has come and whether it would be enough for the bank to put up the cash for the Liberia project but Mr. Bonkoungou told the bank that the group currently employed 7,000 African and 250 expatriate staff to run its operations, describing the company as one of the most equipped in Africa.
At the time, bank President Oramah informed the delegation that the Bank was implementing a strategy under which it was supporting companies that were engaged in activities across Africa. Those companies had been identified as Intra-African Trade Champions or IntraChamps, he said, expressing confidence that, based on its activities, EBOMAF was qualified to be in that group although it is unclear how much weight the issue of conflict of interest and Liberia’s code of conduct breach by Bonkoungou would have on the loan process.
President Weah has acknowledged that the Burkinabe businessman has been providing him a plane which he has been using for his travels since his inauguration.
Agreement’s Confusion a Concern
Like the Eton Financial Private Ltd loan agreement, the EBOMAF loan is a bit confusing with the government listed as a guarantor, which, in the project finance context, normally means that the Government is providing a guarantee to the lending banks that the project developer, who is normally the borrower, will repay the loans taken out to finance the development and construction.
Many financial analysts say because Liberia is the borrower, there really is no need for a guarantee, explaining that a normal lender on an arm’s length basis would expect far more protections than are contained in the EBOMAF agreement. These would include –a far more detailed and precise description of the projects. –a feasibility study in advance that the projects are actually achievable and what the costs would be. There is no explanation for the amount of the loan ($420,810,000) other than to say this is the amount of the road building work but there’s no basis for this number.
The number, financial analysts say, looks very high on a per kilometre basis in that money would only be disbursed when it was actually needed by the borrower rather than 30% being disbursed before the work has even begun. –various covenants, undertakings and default/acceleration provisions. –additional security for repayment in the case there’s any question about the Government’s ability to repay the principal.
In the case of this deal, EBOMAF is not only the lender but also the contractor building the project, which is extremely unusual and complicated by what many see as a rather confusing disbursement schedule.
According to the agreement, The loan shall be disbursed through EBOMAF SA with its financial partners EBID/orAFREXIMBANK. The amount of the first draw requested shall be equal to the amount of the lump sum advance agreed for the works, i.e. of the total amount of the work.
The loan shall be disbursed in four tranches. The first tranche of 30 percent shall be disbursed within fifty days after the confirming date of sovereign guarantee from the Central Bank of Liberia. The second tranche of the 30 percent shall be disbursed by the project owner engineer. The third tranche of the 30 percent shall be payable following completion of the 100 percent of the work and certification of completion by the project owner engineer. The fourth tranche of 10 percent shall be payable as retention money payable eighteen months following completion of the 100 percent of the work. Any financing agreement entered to by EBOMAF SA shall contain this disbursement schedule.
The concern for many is why would the Government borrow 60% when the work is only 40% complete? Similarly, why would the Government only be able to borrow more funds when the project is 100% complete? A normal construction company would expect much more regular progress payments. The high price of the works raises the question whether EBOMAF is getting a sweetheart deal in exchange for making a very large loan with some of the loan proceeds to be diverted to government officials.
The agreement says the Government will finance the loan by issuing a “Eurobond” at 6.5% interest. This, according to financial analysts makes no sense since the government is the borrower and is not providing the money to make the loan.
What is even more complicating is the fact that the agreement notes that repayment of the Eurobond rather than repayment of the loan, which jumbles up the two concepts.
Presumably, analysts say, it’s intended that the “Eurobond” is in fact the loan extended to the Government by EBOMAF but this is not clarified in the EBOMAF deal.
Assuming the Eurobond is the same thing as the loan, then the interest rate is stated to be 6.5%, which seems to be a random number. Interest is waived for the first five years of the loan, which makes no commercial sense and is not something an ordinary lender would ever agree to unless it’s factored into the 6.5% payable in years 6 through 15.
Moody: Weah Outlook for EBID
For EBOMAF, the key would be how convincing a case it makes to the two banking institutions listed as partners on the agreement with Liberia.
EBID, the other banking institution received a negative outlook Moody’s Investors Service which last month signed a first-time foreign currency issuer rating to the bank.
Moody cited the bank’s very low capital adequacy due to weak asset quality as exhibited by high Non-Performing-Loans and very low liquidity, which primarily reflects the lack of diversification in the bank’s funding and liquidity sources.
Moody also cited very low strength of member support, primarily resulting from the existence of large capital payments in arrears and the weak credit strength of EBID’s shareholders. “The negative outlook reflects downside risks over EBID’s medium-term credit profile.”
Moody’s assesses EBID’s capital adequacy to be very low due to the bank’s low asset quality. EBID has a history of high NPLs, which have ranged between 11% and 18% of gross loans over 2012-16 after a peak at 31% in 2011. “These are the highest levels in all Moody’s rated Multilateral Development Banks (MDBs), even including those MDBs with high exposures to the private sector. EBID lends primarily to the public sector in its member states (70% of the loans book), while the private sector represents the remainder 30%. Moody’s assesses EBID’s weighted average borrower rating at B3, which is very low.”
All this point to a rather complicated push by EBOMAF to raise the US$420 million for the 323.7 kilometers of road, President Weah is hoping would be completed in his first term. As EBOMAF limps toward the fifty banking days stipulated in the agreement, a lot of questions continue to linger, the key one being, whether the cash will be available and whether the two banks – EBID and Afreximbank will buy into a loan mired in political controversy.