July 30, 2014 1:56 pm

Leveraged loans expand in southern Africa

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The leveraged loan industry is looking to tap into the growth potential of sub-Saharan Africa as it prepares the framework for region-wide transactions.

London-based Loan Market Association, a trade body for the leveraged loan industry in Europe, the Middle East and Africa, has published a set of standardised documents for use in local law transactions across various African jurisdictions.

The LMA is also holding its first conference on Wednesday focused on the southern African region. It said the Johannesburg meeting reflected the significant growth and investment opportunities in Africa.

Clare Dawson, chief executive of the LMA, said the provision of finance in sub-Saharan Africa formed an increasingly significant part of the syndicated loan market and was a big contributor to economic growth.

“The LMA remains committed both to fostering liquidity in this region and assisting its members who are active in the market, and we believe that the production of this suite of documentation provides one of the best ways of achieving these aims, by improving general efficiencies and helping to attract new investment,” she said.

Last year Africa accounted for 26 leveraged syndicated loans worth a total of $13.9bn, according to Dealogic. This was double the previous year’s total and compares with a low point in 2009, which saw just two loans worth $945m. Though growing fast, the African leveraged loan market is still tiny compared with Europe’s, which last year was worth $271bn.

The biggest African market for leveraged loans last year was Nigeria, where there were six deals worth a total of $3.5bn. The next biggest was South Africa, with five deals worth $2.6bn.

The African documents include recommended forms for use in South African loan transactions. These are based on local law documents produced by the African Loan Market Association, which has been integrated with the LMA. There is also a new recommended form of facility agreement for use in Kenya, Tanzania and Uganda, and associated user guides.

The LMA said that while such a variety of jurisdictions would make it difficult to produce “one size fits all” documents, its members operating throughout the African continent felt that the standard form templates would be a step forward, by providing a common framework and language for those involved in transactions.

The LMA said: “We believe these documents will assist in stimulating liquidity in South Africa, by making the market more accessible and attractive to the increasing number of new investors, particularly following the global financial crisis, when management of legal risk and focus on tightly drafted documentation has become increasingly important.”

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