Lekki deep seaport, Nigeria’s biggest seaport project estimated to cost over $1.55 billion worth of investment capital, has set 2018 as its business commencement date as well as operational take-off date. This is as the construction work of the port project has been estimated to take a total of 47 months.
Currently, the promoters of the port project have completed all critical project documentations, including the concession agreement, the engineering procurement and construction (EPC) contract and the sub-concession agreement, and appointed an operator for the container terminal.
The lender group, which has conducted due diligence process to ensure the bankability of the project, came onboard in 4th-quarter 2012 and 1st-quarter 2013. Also, the lender group has accepted the market due diligence that underlines the throughput projections, revenue for the project and technical due diligence approving that the port is capable of handling the projected throughput.
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According to the promoters, the construction of the project may start in full swing even before the debt is issued to enable them stick to project schedule. Environmental Impact Assessment up to the standards of World Bank and Africa Development Bank has been conducted and accepted by the lenders, while the remaining due diligence processes will close by January 2015.
Explaining the delays involved in the project construction, Sandeep Parasramka, chief finance officer, Lekki Port, said at a media parley held in Lagos at the weekend that the project was a 41-month-long construction contract where it would take over 2.5 years to build the port breakwater alone.
“For such large-scale construction, it is mandatory to have a substantial detail design phase before any construction activity begins,” said Parasramka.
Lekki port, according to him, is expected to handle about 1 million TEUs before the first quarter of the second year of its operations and should be operating at its full capacity of 2.5 million TEUs per year within six to seven years of operations. “Lekki port will be a much more efficient and modern port with lower dwell time than the existing ports, hence some traffic transfer must be expected. The project offers robust returns to lenders and equity investors and the country as a whole,” he further said.
According to the Federal Executive Council (FEC) approval given to the project on December 4, 2013, the equity shareholding gives 18.15 percent and 20 percent to Lagos State Government (LASG) and NPA, respectively, in the project, while private consortium of investors led by the Tolaram Group will hold the remaining 61.8 percent. A shareholders’ agreement has already been signed between NPA, LASG and Tolaram.
Precisely, fund for Lagos State equity contribution has already been put into the accounts of LPLE, which will be utilised in payments to the contractor after the start of construction activities on ground.
Investigation reveals that much effort has been put into galvanising fund for the execution of the project. Here, banks are getting credit approvals which are the highest level of approvals required, while the post-credit approvals are mostly a matter of writing the approval terms into financing documents and signing them. African Development Bank (AfDB), European Investment Bank, Standard Chartered Bank, Rand Merchant Bank, Stanbic IBTC and Africa Finance Corporation are the mandated lead arrangers for the transaction.
However, AfDB has recently obtained board approval for funding worth $150 million and European Investment Bank has also secured principal board approval for €160 million funding. Also, AfDB is leading the loan syndications with other development institutions likes of IFC, Propaco, FMO, DEG and IFC, which constitutes almost half of the total debt required for the project and their credit approval was dependent of AfDB approval to a large extent.
“AfDB approval signals clearance of project’s environment and social impact in line with World Bank guidelines. We have few more international commercial banks who are also in the process of securing their credit approvals. All the banks are very keen to participate in the project given its strategic importance, competitive advantage, good financial returns and strong government support,” Parasramka said.
The market and macro-economic impact studies conducted by independent consultancy firms show that the project has the potential to become the gateway to Nigeria’s trade and foreign direct investment. In terms of job and wealth creation, the port is expected to generate direct and indirect jobs estimated at 163,000, while revenue to state and Federal Government agencies from taxes, royalties and duties is projected to amount to $190 billion during the same period.
Based on the financial model accepted by lenders, the debt payback period is well ahead of the caps compared to industry norms. There are host of development financial institutions (DFIs) from Africa, Europe and the USA along with three international commercial banks and multilateral agencies onboard the lending consortium.
For Parasramka, the project has more than enough lending interest, and the promoters will go for price discovery process run by its financial advisors rather than for pure syndication process which is generally completely managed by the mandated lead arrangers.
“Conventionally, projects of this magnitude are undertaken through project financing on a non-recourse basis. This requires the lending parties to agree on appropriate terms of lending and conduct stringent due diligence. These processes take time and are very essential to achieving the debt financing,” he said.
Parasramka, who stated that the actual amount released for the project had been based on equity contribution, added that Lekki Port LFTZ Enterprise (LPLE) and Tolaram were quite appreciative of the support provided by both LASG and NPA for the development of the project.
Uzoamaka Anagor
