Financing paves the way in DR Congo

July 10, 2015 TINE BREMHOLM KOKFELT

Thanks to FLSmidth’s connections and experience with financing major development projects, DR Congo will see its first new cement plant in 40 years.

A major new cement plant will soon become a reality in the Democratic Republic of the Congo, made possible by the patience and determination of visionary partners and financiers. This is a significant development for the country and is driven by a trend towards higher cement prices and burgeoning urban and industrial development. 

The 1.18 mtpy greenfield plant, Nyumba Ya Akiba SA, is not only the first cement plant to be built in the country in 40 years, but it will also become the country’s largest cement producer. It is a 50/50 joint venture between Pakistan’s largest cement producer, Lucky Cement Ltd and Group Rawji, one of DR Congo’s largest conglomerates. The project involves the construction of a greenfield cement manufacturing plant with its associated facilities. 

But launching a project of this kind and magnitude requires much more than acquiring the right equipment and building the right plant. Financing is key. And with a massive USD 270 million needed for Nyumba Ya Akiba, it was imperative that all parties could agree on the financing terms.

A powerful partnership
The joint venture between Lucky Cement and the Rawji Group, both supported by FLSmidth, is in many ways a perfect match. Lucky Cement brings cement production expertise and a strong heritage of business development in a developing economy, while the Rawji Group contributes equally with its commercial expertise founded strongly in the local DR Congo economy. However, the project owners had limited experience in the size and type of international financing required for this project. So with exactly this experience and track record in facilitating financing for customers, FLSmidth was perfectly positioned to provide the necessary support. 

Tine Bremholm Kokfelt, Department Manager of Global Project & Export Finance at FLSmidth, has been heavily involved in several financing agreements in recent years. She explains that FLSmidth’s experience spans several development projects in emerging and developing economies, which has led to the development of a wide network within the international financing community. 

Fifty percent of the project cost, USD 135 million, was put up in equity by the two joint venture partners while the remaining financing was provided in loans from five different lenders: the African Development Bank (AfDB), Danish Export Credit Agency (EKF, Denmark’s Export Credit Agency), International Finance Corporation (IFC), Emerging Africa Infrastructure Fund (EAIF), and Habib Bank Limited (HBL).

Perseverance and skill
But with significant commitments required from these different parties, the entire process required perseverance, intimate market knowledge and some skilled negotiation to make it all come together.  “Obtaining financing for projects in developing economies is complex and often challenging,” says Tine Bremholm Kokfelt. “The key is to understand the requirements and capabilities of all parties, align expectations, and obtain assurances that everyone will live up to their commitments.” 

 “The requirements for a project finance structure for a greenfield project in a country such as DR Congo are comprehensive,” she elaborates. “A thorough due diligence process, including environmental and social assessment, was undertaken and coordinated by the lenders, independent consultants and advisors. 

This included producing extensive loan documentation and agreements between the various parties, which is no easy task.”  Throughout the process, EKF, Denmark’s Export Credit Agency, played an important role, not backing away from challenges that arose. “Without the strong support by EKF and subsequent involvement of the legal advisors of the lender group, we would not have reached the final agreement,” states Tine Bremholm Kokfelt.

The partnership between EKF and the African Development Bank (AfDB) was a vital piece of the financing puzzle, too, with the two parties creating a new financial structure in 2014. For Nyumba Ya Akiba, AfDB fronted two facilities of USD 30m, of which one was fully guaranteed by EKF. “ DR-Congo is a challenging country and EKF would not have been able to support the Project without the participation of and close cooperation between the high quality lending parties, sponsors and FLSmidth” says Senior Director Morten Sørensen of EKF. 

“This was the second time AfDB and EKF had worked closely together, creating an excellent basis for a greater cooperation on the African continent,” says Fernando Rodrigues, Senior Investment Officer at AfDB. “It was the first time we had worked with FLSmidth – a cooperation that could pave the way for new opportunities of collaboration into common areas of intervention in the mining sector,” he adds.

Paving the way
Muhammad Faisal, CFO and Chief Investment Officer (CIO) at Lucky Cement admitted it was a big step to invest in DR Congo operations, but he is confident in the partnerships with Rawji Group and FLSmidth: “We have worked with FLSmidth in Pakistan and we think that FLSmidth has the best technology supported by highly competent advisors and engineers. We also appreciate that FLSmidth has a lot of experience in facilitating project financing, so we were confident they were the right partner for the project.”

Muhammad Faisal added that Lucky Cement would not have been in DR Congo without Group Rawji and Group Rawji would not have been in cement business without Lucky Cement. This is considered to be an ideal  combination of a leading cement player from Pakistan with one of the largest business groups in DR Congo to make this huge investment for building and developing DR Congo. 

For Lucky Cement, this was first of its kind and also a break-through opportunity and important for its future growth. Not only was it the company’s biggest foreign investment, but it was also the first time the company had obtained financing from multilateral and international financial institutions. 

“This is a major step for Lucky Cement. In entering into the agreements with various parties, we wanted to be absolutely sure all the right foundations were in place to support our partnership with Group Rawji and to secure our future in DR Congo,” says Muhammad Faisal, CFO and CIO Lucky Cement, adding, “We believe we have achieved that and have started construction of the plant now.”

We appreciate that FLSmidth has a lot of experience in facilitating project financing, so we were confident they were the right partner for the project.“ - Muhammad Faisal, CFO and Chief Investment Officer (CIO) at Lucky Cement

Indeed, the success of this financing could have long-term ramifications, marking a different approach to large projects and investments in developing countries such as DR Congo. 

Normally, financial institutions only look at financing complete engineering, procurement and construction (EPC) contracts, but in this case, Lucky Cement insisted that the contract was split into two elements. With extensive experience and intimate knowledge of the components and processes required for constructing cement plants, the Pakistani cement producer has become adept at reducing overall project costs. 

At FLSmidth, we have a good track record in establishing cement plants in developing countries, so we usually know what the risks are and how to manage them.“ - Tine Bremholm Kokfelt, Department Manager, Global Project & Export Finance, FLSmidth

Commenting on the significance, Tine Bremholm Kokfelt says, 
“It demonstrates that it is possible to get support for non-EPC projects in Africa.”

FLSmidth’s supply
FLSmidth is supplying a complete package of equipment and  engineering for the 3,000 tpd cement plant, including all the engineering, equipment and construction support. The equipment includes crushers, pyro processing equipment and vertical mills for raw meal, coal and cement grinding.

The impact of the cement plant on the environment and local community was a key factor for the owners and lenders choosing FLSmidth as equipment supplier. They demanded a technology provider with a proven ability to deliver reliable products and high level of service, particularly because of the challenging conditions under which the plant will be installed and operated, pointing to FLSmidth's proven ability to supply environmentally optimised and energy-efficient equipment. 

Mitigating risk
Along with the considerable upsides of developing Nyumba Ya Akiba come considerable risks, too. DR Congo’s banking and legal systems are relatively under-developed and there is perceived to be some political uncertainty. It was therefore necessary to structure the financing in such a way that mitigates risk for all parties as best as possible.

This involves opening up dialogue and making connections, which is a particular strength of FLSmidth. Tine Bremholm Kokfelt explains: “At FLSmidth, we have a good track record in establishing cement plants in developing countries, so we usually know what the risks are and how to manage them. But it’s understandable that it can make some parties uneasy. There has, up to now, only been very limited large private industry projects in DR Congo.” 

With the final financing agreements in place at the end of 2014, FLSmidth is mobilising the equipment. Cement production is expected to start towards the end of 2016. 

Reflecting on the many days of negotiations and discussions, Tine Bremholm Kokfelt says that belief in the final outcome throughout was vital: “This project goes to show that with the right approach as well as a fair amount of determination and patience, it is possible to achieve goals that seem unattainable.” 

 

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