Project Finance in the OHADA zone: ten things to know - Part 1
In the light of growing interest from investors into countries in the OHADA zone, this series of articles will outline the top ten things to know when investing in or developing a project in the region in order to anticipate « bankability » concerns. These are based on our recent experiences in power project finance (both renewable and conventional energy based).
In Part 1, we will examine the scope of OHADA itself. In a subsequent Part 2, we will examine issues covered by regional and national legislation and rules outside of OHADA but applying in the same geographical zone.
Introduction – What is OHADA?
The OHADA legal and judicial system is one of the most successful legal integration experiences of the late 20th and early 21st century. OHADA is an organization (Organisation pour l’Harmonisation en Afrique du Droit des Affaires, i.e., Organisation for the Harmonisation of Business Law in Africa) created by treaty in 1993 in order to remedy to legal and judicial uncertainty and restore investors’ trust.
While the membership of the organization is open to any country in the African Union, the OHADA zone is currently limited to 17 French-speaking countries of Sub-Saharan Africa as shown in Fig. 1 hereafter. Following the return of Morocco to the African Union in January 2017 however, a rapprochement between OHADA and Morocco may occur (https://www.leseco.ma/les-cahiers-des-eco/afrique/60202-maroc-ohada-rapprochement-en-cours-3.html).
1. Legal framework and exclusions
OHADA promulgates Uniform Acts that prevail in their respective subject areas over national laws (whether adopted prior or subsequently) and are directly applicable in each Member State, which make the OHADA harmonization system particularly efficient and quite unrivalled.
The Uniform Acts deal with:
- General commercial law
- Corporate law and rules concerning certain joint venture entities
- Cooperatives law
- Guarantees and Security Interests
- Recovery un execution proceedings
- Bankruptcy proceedings
- Accounting law and financial reporting
- Carriage of goods by road
- New: Mediation (effective date: 15 March 2018)
- Civil law
- Public (administrative) law
- Labor law
- Mining law
- Petroleum law
- Insurance law (BUT there does exist the Inter-African Conference on Insurance Markets – CIMA)
- Tax and social security law
2. Corporate law – project development through a registered branch
Deciding whether to incorporate a company locally for the purposes of a project or simply register a branch is something foreign developers should consider carefully in light of the requirement under the OHADA Uniform Act on Commercial Companies and Economic Interest Groups to convert any branch registered by a foreign company into a subsidiary within two years as from its registration date. An exemption may be granted by order (arrêté) of the minister in charge of trade in the relevant country but limited for a one-time non-renewable two year period unless the company is subject to a specific regime in such country (https://www.nortonrosefulbright.com/knowledge/publications/129183/a-closer-look-at-the-impact-of-the-ohada-revised-uniform-act-on-commercial-companies-and-economic-interest-gro).
Even though a conversion is common in OHADA member States, it is worth noting that several aspects (including the transfer of authorisations, the transfer of contracts, the distribution of dividends and tax consequences) should be closely reviewed and the conversion process must be carefully implemented.
3. Security interest law – security agent role
The OHADA Uniform Act Relating to Security Interests provides for a security agent role which may be held by a financial or credit institution, whether domestic or foreign, and the main benefits of which are as follows:
- any assets or rights held by the security agent in such capacity are segregated from its ordinary assets (patrimoine d’affectation) – which means that in the event of the subsequent insolvency of the security agent, the security continues to be available to the underlying beneficiaries of the security and cannot be attached by the creditors of the security agent itself; and
- in the event of replacement of the security agent, all of the rights and actions held by the security agent in favour of the secured creditors are automatically transferred without any other formality being required, to the new security agent – which means that it is not necessary for security in the context of syndicated loans to be granted separately to each of the individual creditors or for changes in the composition of the lending syndicate to require amendments to the security documents which could trigger additional filing fees.
4. Security interest law – registration costs
Under the OHADA Uniform Act Relating to Security Interests, security interests are organized according to the nature of the category of assets over which the security is sought to be created. Hence, for each key onshore asset a specific security will be required to be granted; and almost all security documents will be required to be filed with the relevant commercial registry (RCCM - Registre du Commerce et du Crédit Mobilier) or, for mortgages, with the relevant land registry. In addition, it should be noted that while there is no obligation to register security interests with the tax authorities in the OHADA Uniform Act as a condition to such filing, in practice, such requirement has been maintained in most jurisdictions.
This may give rise to significant registration and filing costs depending on the jurisdiction, as although OHADA law requires the filing to take place, national legislation determines the amount of registration and filing fees, which may therefore vary from one jurisdiction to another, with costs which may be calculated as a function of the underlying obligation/secured amount. Consequently, when structuring the onshore security package for a project finance the registration and filing costs will need to be considered closely. Fig. 2 shows some examples of costs involved for the perfection of security documents in our recent experiences in Senegal, Mali and Chad.
In our upcoming Part 2, we will examine other issues affecting “bankability” of projects in the OHADA zone which arise under other regional and local laws and regulations.
Fig. 1 – Current OHADA 17 countries
Fig. 2 – Examples of costs involved for the perfection of security documents