After years of development, Nigeria’s first greenfield independent power producer (IPP) project reached financial close at the end of 2015. The 450MW Azura-Edo open-cycle gas turbine power project required a complex package of guarantees from multiple arms of the World Bank in order to be bankable.

Participants in the project hope the financing will set precedents for other African power deals. Other observers doubt whether a deal of the complexity and size of Azura-Edo will be repeated again in the region. The Nigerian government will hope at least that the deal will act as a catalyst for investment into several other power projects which have been on hold in the country.

Structure

The Azura-Edo power plant is being developed by a consortium of private investors which own 97.5% of the project equity through a holding company registered in Mauritius. The government of Edo state holds the remaining 2.5% locally.

Azura Power, a joint venture between Amaya Capital and American Capital Energy and Infrastructure, owns 50% of the holding company, while AIIM-managed African Infrastructure Investment Fund 2 holds 30%, Aldwych International 14% and Asset & Resource Management Company 6%.

The sponsors signed on the financing in November 2014, but financial close was delayed by a year due to a general election which led to a change in government.

Nigerian upstream production and development company Seplat will supply gas to fuel the plant under a 15-year contract. Despite Seplat needing to raise additional capital last year to complete its planned upgrade to the Oben gas processing facility which will supply Azura-Edo, investors took some comfort that the planned upgrade will take roughly half the time of the three-year construction period for the power plant.

The sponsor group signed a PPA with the Nigerian Electricity Regulatory Commission in April 2013, after 17 months of negotiations. The state-owned Nigeria Bulk Electricity Trader (NBET) will be the sole offtaker from plant under a 20-year PPA. NBET will then sell power onto local distribution companies (discos).

This offtake structure was a first for the Nigerian market and a major test of credibility for NBET. The project is also part of a wider privatisation of the domestic power market, after the government began selling state-owned discos and generating companies in 2013. Nigeria hopes to create several other IPPs in the wake of Azura-Edo.

Fully covered

The project tapped a wide range of financial institutions for support, but required a complex package of guarantees in order to be bankable. The World Bank‘s International Bank for Reconstruction and Development (IBRD) has guaranteed three months-worth of payments by NBET under the PPA. Several other divisions of the World Bank group are also involved in the transaction.

The World Bank’s Multilateral Investment Guarantee Agency (MIGA) is providing political risk cover to the deal’s hedging banks and to equity sponsors. MIGA and the IBRD are providing political risk cover to the participating commercial banks. The World Bank’s International Finance Corporation (IFC) is also participating as a direct lender.

The government is not providing a sovereign guarantee for its obligations, but instead a put and call option agreement.

Financing   

The roughly $880 million in project costs are to be met through a combination of senior debt, mezzanine debt and equity, assembled by sole structuring bank and global coordinating mandated lead arranger Standard Chartered. The IFC and FMO arranged a $267.5 million, 15-year development finance institution tranche of senior debt. The facility was priced at around 600bp over Libor and has a step-up in the last three years. The other lenders on the tranche were:

• DEG
• Proparco
• SwedFund
• CDC Group
• ICF Debt Pool
• OPIC
• EAIF

The IFC provided $50 million in this senior debt tranche, with all other lenders taking tickets of between $20 million and $50 million. The IFC ($30 million), OPIC ($15 million), Proparco ($10 million) and EAIF ($10 million) also contributed to a $65 million mezzanine facility.

Rand Merchant Bank and Standard Chartered arranged 12-year commercial bank debt split between two $117 million tranches covered by MIGA and IBRD, respectively. KfW IPEX only participated in the MIGA tranche, Standard Chartered only participated in the IBRD tranche, while Siemens Bank, Standard Bank and Rand Merchant Bank lent on both. The commercial bank debt was priced at roughly 525bp over Libor.

Local bank First City Monument Bank (FCMB) on-lent N24 billion ($121 million) from the Nigerian government. Central Bank of Nigeria’s Power and Airline Intervention Fund provided the liquidity for the loan, while FCMB has taken the commercial risk. The loan has a fixed interest rate of 7% and a tenor of 11 years.

The sponsors have provided roughly $190 million as equity.

Advisers

Fieldstone was financial adviser to the sponsors, while Templars was their Nigerian legal adviser and Trinity was international legal adviser. The lenders were advised by Lummus (technical, gas procurement), Royal Haskoning (environmental and social), Clifford Chance (international legal), Olaniwun Ajayi (Nigerian legal), INDECS (insurance).

KPMG Nigeria was the local tax adviser to the sponsor, Pedabo (local) and Grant Thornton (international) provided tax and accounting advice for the lenders, Parsons Brinckerhoff was the technical adviser for the sponsors and Aon was the sponsors’ insurance adviser.