Côte d’Ivoire’s SIR financing highlights innovations in Africa’s debt markets

ABIDJAN (Capital Markets in Africa) – Côte d’Ivoire’s Société Ivoirienne de Raffinage (SIR), West Africa’s largest oil refinery, has secured a €577mn debt financing which will help it repay historical obligations on crude supply and reduce the interest rate of its stock of debt.

The facility will also enable SIR to upgrade its plant and align it to international environmental emissions standards, with a view to business expansion.

In recent years, Côte d’Ivoire has put in place a comprehensive programme of economic reforms aimed at achieving a sustainable balance of payment position. One of the target areas in this reform agenda is the energy sector – a critical growth area for the country.

Founded in 1962, SIR is the sole refinery in Côte d’Ivoire and is majority owned by the government and a number of international oil companies.

The debt financing facility comprises a nine-year euro tranche and a seven-year West African CFA franc tranche. Africa Finance Corporation (AFC) acted as sole mandated lead arranger on the facility, funding €192mn from its own balance sheet.

Participating banks included Deutsche Bank, ICBC Standard Bank, United Bank for Africa, NSIA Bank and Bridge Bank. Counsel for the lenders was Norton Rose Fulbright and Bilé-Aka, Brizoua-Bi & Associés.

To support the government’s drive to sustainably manage the debt of the company, AFC, and Texel, the specialist credit and political risk insurance broker, approached the African Trade Insurance Agency (ATI) to provide credit risk insurance cover on the transaction.

ATI’s insurance guarantees, which covered around 44% of the outstanding facility, enabled two of the major lenders in the deal to make sizeable contributions, John Lentaigne, chief underwriting officer at ATI, tells GTR.

“The transaction highlights recent innovations in Africa’s debt market as well as the trend toward leveraging African institutions to source and manage long-term and competitively-priced financing on some of Africa’s largest deals,” says ATI in a release. “If structured well, there is broad appetite for African debt.”

Texel’s chairman Andy Lennard believes that this type of structure can be replicated with the insurance market providing support to “reduce the funding gap that exists between the amounts needed for infrastructure projects and the present deficit”. He hopes that the transaction will be the “first of many such initiatives”.

“We are thrilled that this transaction was executed as it clearly demonstrates that there is appetite in the financial services market for this type of transaction both from not only a risk but also a financing perspective,” says Lennard.

SIR has an installed capacity of 3.8 million tonnes a year of refining capacity. It sells 50-60% of production domestically and exports the balance to neighbouring West African countries.

“Between 2008 and 2012 the company faced a number of operational challenges related to the global financial crisis  and the domestic civil war, which reduced demand for refined products,” explains ATI’s Lentaigne. “In 2010 the refinery had to declare force majeure amid a post-election crisis and subsequent sanctions. SIR’s current situation is also partly due to delays in payment of government subsidies. Finally, given the unhedged oil purchase, SIR’s crude stocks turned out to be expensive when oil prices fell in 2015 and 2016, which tremendously impacted the profitability of SIR.”

Nevertheless, Lentaigne notes that SIR’s management has “started to turn things around” with last year being a profitable one for the company, with a net profit of US$81mn.

“As the most important refinery in Côte d’Ivoire, and one of the most significant in West Africa, this refinancing puts SIR onto a sound financial footing which is obviously important for regional economic development,” says Lentaigne.