Implications of UEMOA Regulations on the financing structure of projects in Senegal: restrictions on guarantees

Posted in Agriculture Infrastructure Mining Oil and gas Power Western Africa Blog post

As a member state of the West African Economic and Monetary Union (UEMOA), Senegal is subject to the UEMOA currency regulations which, among other things, regulate the flow of currency out of Senegal. Special consideration will therefore need to be given to those regulations when structuring the financing of a project located in Senegal.

One particular issue which may arise concerns the granting of a guarantee from a Senegalese entity or person. While in a “standard” project finance structure the loan is usually directly disbursed to a special purpose vehicle incorporated in the jurisdiction of the relevant project, the commercial realities of the deal, including the desire to operate in a more familiar legal and regulatory environment, as well as accounting and tax considerations, may drive the principals to adopt an alternative structure whereby the loan is paid at the holding company (“Holdco”) level in an off-shore jurisdiction, and then on-lent to the project company (“ProjectCo”) in Senegal. In such instances, the lender would typically require ProjectCo to guarantee Holdco’s obligations to the lender.

In Senegal, the provision of such a guarantee would pose certain difficulties.

Foreign investments made from within Senegal are regulated by article 10 of the UEMOA regulations N°09/2010/CM (the “Regulations”) which provides that “All investments made abroad by [a UEMOA] resident are subject to prior authorization from the Minister of Finance”. “Investments” for the purpose of article 10 are stated to include guarantees. Article 10 also specifies that at least 75% of such foreign investments must be “financed through foreign loans”.

While there is room to argue that these provisions were never intended to capture guarantees given by Senegalese companies where the full benefit of the financing guaranteed flows into Senegal, a strict reading of the Regulations reveals that (1) guarantees cannot be given by local entities to foreign entities without the approval of the Senegalese Minister of Finance (the “MoF”) and (2) in granting his approval, the MoF would apply to the guarantee the restriction on using no more than 25% of Senegalese funds to finance the guarantee (thereby resulting in a capping of the guarantee at 25% of the amount guaranteed) (the “25% Restriction”).

The parties could seek to obtain a confirmation from the MoF that, in the scenario set out above, article 10 of the Regulations does not apply to the guarantee (or alternatively that the guarantee is approved and the 25% Restriction either does not apply or is satisfied on the basis that the funds advanced by the lender have come onshore to the benefit of ProjectCo). However, even if such a confirmation could be obtained, there remains the critical question of its legal status and whether it could be subject to further challenge. This is because the MoF technically has no legal authority or discretion with respect to the application of the UEMOA regulations, which are supranational legislation applicable in all UEMOA countries.

Possible solution:

To address this, alternative financing structures should be explored. One preferred approach is to structure the financing so that the funds disbursed to Holdco are on-lent to ProjectCo by way of a secured intercompany loan, repayable on demand, with Holdco assigning the full benefit of the intercompany loan to the lender as part of the security package granted by Holdco for its obligations to the lender. This structure has the benefit of leaving the lender in substantially the same position as if a guarantee had been obtained from ProjectCo: following a default by Holdco under the facility advanced by the lender, the lender would have direct access to ProjectCo and, should ProjectCo fail to repay the intercompany loan on demand, the security granted by ProjectCo would become immediately enforceable by the lender in the same way as it would have if the project company had failed to pay under a guarantee to the lender.

Additional consideration should be given to the specificities of each deal.

Recent experience in Senegal:

  • Mako Gold Project: Advising Taurus Mine Finance on the senior debt finance and secured royalty arrangements with Toro Gold Limited and its Mauritian and Senegalese subsidiaries. Toro Gold is developing its Mako gold project in Senegal.
  • Port of Dakar: Advising Standard Chartered Bank and African Development Bank together with a syndicate of development finance institutions in providing finance for DP World Dakar S.A. to expand, upgrade and operate an existing container terminal in the Northern Zone of the Port of Dakar, Senegal. We advised the lenders on MIGA guarantees to cover loan and hedging investments and an equity investment by DP World FZE.
  • Grande Côte Mineral Sands project: Advising Grande Côte Operations SA, the mine operating company of Mineral Deposits Limited, in respect of its joint venture with Eramet SA and the resulting joint venture vehicle on all aspects of the Grande Côte Mineral Sands project in Senegal. This financing involved separate tranches of funding from commercial banks, export credit agencies and developmental financial institutions, including the AfDB, DEG, FMO, the Proparco, EIB, EFIC and Finnvera.
  • TiZir Nordic Bond: Advising TiZir Ltd (a joint venture between Mineral Deposits Ltd and the French multinational mining group, Eramet SA) on the successful issuance of a US$150m Nordic Bond and the related intercreditor aspects in relation to future funding.
  • Phosphate mining: Advising Axis Bank on the US$75m term loan facility provided to the Archean Group, used to fund the acquisition of a majority shareholding in Industries Chimiques du Senegal, a Senegalese company involved in phosphate mining and the production of phosphoric acid and fertilizers.
  • Gold mine project: Advising a Saudi Arabian client with a gold mine project. 
  • Attapulgite clay project: Advising a Spanish energy company in the development and distribution of special clays related to attapulgite deposits and commercial mining.
  • Golouma Gold Mine: Advising project sponsors, Oromin Joint Venture Group and SOMIGOL, in connection with all aspects of mine exploration and development program, including work related to negotiation of mining concession and related riders, feasibility studies and environmental reports.

    Inside Africa team would like to thank Coraline Knights, an associate, for her contribution to this blog post.


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