Telecoms bankers have become accustomed to raiding the debt markets of African nations to support the continent's mobile projects. The practice has a solid rationale - telecoms projects do not earn dollar revenues in any great amounts, while international banks are wary of lending to the country, outside of the natural resources sector. But the $375 million MTN Nigeria deal attempts to push the template set by Safaricom and Vodacom Tanzania to extremes of size and structuring.

The deal is the largest ever deal outside of the natural resources sector in the region, and probably the largest telecoms deal to close outside South Africa. $250 million of the $375 million is in Nigerian naira, so that the arrangers - Citigroup and Standard Bank - tested the domestic syndications market in the way that no corporate deal, let alone a project deal, had previously done. It sets a benchmark for future corporates looking to borrow in the country.

MTN Nigeria is controlled by the MTN Group of South Africa, which owns roughly 77% of the company, with the remainder held by Nigerian investors and the International Finance Corporation (IFC). It was incorporated in November 2000, and was one of three successful bidders for GSM licences that the government awarded in January 2001. The price tag for this shot at 120 million potential subscribers was $285 million equivalent.

The sponsor managed to get the outline of a network functioning by the middle of 2001 and wanted to raise debt to extend its network into the country. As well as being Africa's most populous nation, Nigeria is unique outside of South Africa in having a number of distinct urban centres. As such it requires a more sustained effort on the part of an operator than usual - it cannot simply blanket a capital city, then spread into rural areas at a leisurely pace. Constant competition for new subscribers is offset by consistently high levels of average revenue per user (ARPU), and a churn rate that is low compared to more developed markets.

Nigeria is by far MTN's most significant foreign investment, and had 1.381 million subscribers as of the end of September 2003. It also contributes ARPU of $55, compared to roughly $28 for its South African operations. EBITDA from the operations is also higher. Nigeria is, therefore, a lucrative and growing part of MTN's portfolio.

But it is a demanding one - and MTN expects that rolling out the network will consume considerable amounts of money. Before this financing was in place, the sponsor had agreed with the leads in 2001 a $170 million bridge loan that was non-recourse, and had a term of one year. This deal was extended in 2002 for a further year, when it looked as if the conditions for a long-term deal were not yet propitious.

The sponsor needed to strike a balance between the dollars required to pay for equipment bought from Ericsson, and the need to find a source of funding that would be matched to revenue sources. While it had a little flexibility in where to source the debt, the outlines were set to a great degree by the bridge facility, as well as the depth of appetite in the Nigerian market. While MTN's competitors had accessed the market before - they were looking for roughly a tenth of MTN's requirements.

The N31.13 billion local currency facility had a tenor of three years, and several Nigerian financiers privately believed at the time that such a sum could not be accessed in the domestic markets. A long-term bank market is not very highly-developed, although Nigeria's commercial paper market is strong. The debt therefore is provided by a syndicate of banks - led by Nigeria International Bank (NIB) Limited, part of Citigroup, and Stanbic Bank Nigeria, part of Standard - and syndicated in the commercial paper market.

This commercial paper takes the form of a 90-day note, one which carries relatively light treatment from regulators, and is easy to sell on. The arrangement means that the two leads are exposed to a drying up of the market, since they alone are committed to the repurchase of the notes over the three-year life of the loan.

The prospect of the disappearance of this market appears unlikely while Nigeria's financial system develops. Indeed, the syndication involved pitching the seven bridge loan providers, as well as 13 other banks, including United Bank of Africa, and Union Bank of Nigeria. The only exceptions were those linked by ownership ties to MTN's competitors. The deal proved successful enough for the leads to upsize it from $200 million equivalent to its final level.

It also enabled the sponsor to dispense with a number of other options, including, to supplier Ericsson's relief, a vendor finance piece. It was also able to avoid borrowing more than $35 million from the IFC, thus avoiding an attempt to syndicate a B loan. The IFC does, however, also provide a $50 million standby facility. This tranche is designed to take care of refinancing risk on the naira tranche. Should local banks be unable to roll over the debt, this facility, along with a reduction in outstanding debt, devaluation, and contributions from MTN Group, in the form of management fees paid by the subsidiary being clawed back, should be sufficient.

The package is rounded out with a $20 million 6.25-year DFI facility (from FMO and DEG) and a $40 million 3.25-year facility from Standard Corporate and Merchant Bank in South Africa, covered by political risk insurance from that country's export credit agency ECIC. This is one of the first times ECIC has extended cover in Nigeria, and one of the first instances of it providing PRI without commercial cover. It is not ECIC's first telecoms project, however, since it cut its teeth on Vodacom Tanzania in 2002.

The local currency portion was priced at 100bp over the Nigerian Interbank Offered Rate (Nibor), and provided a benchmark for corporate borrowers to follow. MTN will look closely at how the country's interest and exchange rate movements affect the viability of repeating this structure.

MTN Nigeria

Status: closed November 2003

Size: $800 million

Location: Nigeria

Description: local and offshore financing for GSM network buildout

Sponsor: MTN Group, IFC, local investors

Debt: $375 million equivalent in dollar and naira tranches

Lead arrangers: Citigroup, Standard Bank

Providers: FMO, DEG, IFC

ECA: ECIC

Lawyers to the arrangers: Norton Rose (international) and Ubo Udoma and Bela Osagie (Nigeria)

Lawyers to the IFC: Clifford Chance

Lawyers to the sponsors: Freshfields; Webber Wentzel Bowens