Eiffage’s Senegalese subsidiary is its only one outside Europe, though it has had a presence in the country for 90 years. But its financing for the Societe Eiffage de la Nouvelle Autoroute Con­cedee, holder of the Dakar-Diamniadio, shows that Euro­pean-style real toll concessions, with strong host government support, can attract private capital.

The project is almost certainly the first completely greenfield toll road financing out­side South Africa to close on the continent. It indicates that where sponsors see strategic sense – and solid economic incentives – they can apply the lessons of more developed mar­kets to Africa’s infrastructure needs. SENAC includes a mix­ture of multilateral and region­al development banks, as well as a domestic commercial lender and some direct funding from government.

The last element is an important innovation for African grantors, some of which can bor­row money on a sovereign basis comparatively cheaply. Like their counterparts in de­veloped markets, they have realised that if private sector sponsors and lenders price capital too expensively they can substitute their own.

Dakar-Diamniadio is a priority project for Senegal and consists of three sections. The government built the first 7.6km section, between Malick Sy and Patte d’Oie, which will stay free of tolls and is not part of the concession. Portugal’s MSF built, but does not operate, the second 4.2km section, from Patte d-Oie to Pikine. Senegal’s concessions authority, APIX, planned to award the construction of the third section, 20.6km between Pikine and Diamniadio, together with the operations of the second and third sections, to a private concessionaire.

Bidders on the third section included MSF, which had an advantage from building section 2, and Autoroutes du Maroc, which operates a network of toll roads in its nearby home market. But Eiffage had two advantages: a local presence in the construction industry and knowledge of the operations of real toll concessions under French law (80% of its operations are inside France).

This experience was vital, because APIX had taken on high-priced advisory services from firms with roots in the French market. The group, consisting of SETEC (traffic), Norton Rose (legal), Egis (technical) and Compagnie Benjamin de Rothschild (financial), modelled the concession for the two sections on best practice in the European market.

There were tweaks to accommodate risk perceptions of the Senegalese market, including strict prohibitions on competing routes, but also stipulations that the Senegalese government per­form the infrastructure upgrades necessary to feed traffic into the concession. The contractor default provisions in the contract are relatively lender-friendly compared to European standard agree­ments. But in many respects the toll regime, with its permitted increases tied to the local consumer price index, would be familiar to a European lender. But the volatility in traffic forecasts would be less comforting. Lenders do not just have to model drivers’ sensi­tivity to price increases, but whether they will pay tolls at all.

When Eiffage won the concession it faced a much different set of economic assumptions than those that governed its European business. It expected to be earn a slightly higher internal rate of return than its European assets, where 15% is the market norm, although after contributing additional equity to the concession its rates of return are closer to the European ideal.

The sponsor’s priority was to ensure that as much of its funding as possible was in CFA Francs, the common currency for francophone West Africa that enjoys a peg to the Euro. The Euro peg, a legacy of the currency’s peg to the French Franc, is not impervious to pressure. Sudden and painful devaluations have happened, though they are best viewed as a political risk.

The final debt package was split roughly equally between Euros and CFA Francs, with the latter debt having average pricing of 10%, and a slightly higher com­ponent of the Euro debt being, like Eiffage’s equity, subordinate. Eiffage is contributing roughly CFA23 billion ($50 million) in equity, while the government upfront contribution is CFA82 billion, and debt is CFA42 billion.

The CFA42 billion financing breaks down into a CFA15 billion 14.5-year loan from the West African Development Bank, a CFAF5 billion loan with a 14-year tenor from Sene­galese commercial lender Banking Company of West Africa (CBAO, after its French initials, part of Morocco’s Attijariwafa Bank group), a CFAF6.5 billion equivalent sub­ordinated loan in Euros from the International Finance Corporation, and CFAF7.75 billion in 15-year Euro-denominated senior debt each from the IFC and African Development Bank. The CFA Franc debt is priced at an all-in rate of roughly 10%.

The presence of the CBOA is particularly notable, as is the tenor it was willing to pro­vide. It managed to close alongside the multi­laterals when several other banks with oper­ations in the country, some of them Eiffage relationship banks in Europe, were unable to commit. CBAO’s long-standing in-country relationship with Eiffage’s Senegal subsidiary made up for its limited project finance track record. The International Finance Corporation took the lead during the due diligence process, given that it possessed the most emerging markets toll road experience of the lenders.

Dakar-Diamnialio provides an extremely rigorous grounding for lenders looking to do more toll road business in Africa, though opportunities will still be infrequent, given that project finance structures will suit only the best-governed jurisdictions and governments with adequate access to global debt markets, or a good working relationship with multilaterals. The most obvious follow-up is an extension to Dakar-Diamniadio, and while Eiffage is unlikely to treat this financing as the signal to build up a large emerging markets portfolio, it will be well-placed, and likely to, bid on that project. 

SENAC
Status: Signed 2 December 2010
Size: $300 million
Location: Dakar, Senegal
Description: Construction of 20km toll road and operation of it and additional 4km under a 30-year concession
Grantor: APIX
Sponsor: Eiffage
Equity: CFA23 billion
Debt: CFA42 billion
Lenders: Banking Company of West Africa, African Development Bank, West African Development Bank, International Finance Corporation
Lender legal: Clifford Chance
Traffic consultant: MVA
Sponsor financial adviser: Nodalis
Sponsor local tax and legal: Ernst & Young Senegal
Sponsor legal: White & Case
Government advisers: SETEC (traffic), Norton Rose (legal), Egis (technical) and Compagnie Benjamin de Rothschild (financial)