The first green bond was issued only ten years ago, but since then the market’s depth and volume has increased exponentially. Green issuances are now considered mainstream. While sovereign issuers were initially slow to issue them, they now realize that green bonds offer easy access to a large and diverse funding pool, providing a source of low-cost and much-needed capital to finance infrastructure projects and set up green funding programs.

The various forms of green finance are open to almost any sovereign. While France might have been a predictable early mover, very few would have bet on Poland and Fiji being among the first sovereign green bond issuers. This demonstrates that green bonds are a viable alternative to traditional financing mechanisms. There is no set issuer profile: Most sovereigns that can issue international bonds could also issue green bonds if they meet the criteria. Many African states have indicated their intention to facilitate and undertake green issuance at the sovereign level, some of which are in the pipeline for the not too distant future.

There is no set issuer profile, so most sovereigns that can issue international bonds could also issue green bonds if they meet the criteria.

The Case for Going Green

Almost every African sovereign is party to and has ratified the Paris Agreement¹ on climate change and has committed to reducing carbon dioxide emissions through national programs.² In developing the Paris Agreement, green bonds were identified as one of the most readily accessible and economical options available to nations to facilitate raising large amounts of capital to meet environmental targets and the funding of infrastructure projects that underpin them. Quite significantly, African nations are among the most vulnerable to impacts of climate change and therefore, many have a need for climate change adaptation and “sustainable infrastructure” such as public transport, water services or clean energy. According to the African Development Bank (AfDB),³ the African region’s vulnerability to climate change, translated as damage relative to GDP and population, is proportionally most acute. Financial requirements to adapt to climate change are projected to be between US$20 and US$30 billion annually until 2030. These can only be met through diversification of finance mechanisms and sources of funding. The particular climate-related challenges depend on the circumstances and geography of each nation. A summary of the key issues is shown in Figure 1.

These factors may drive decision makers to the green bond markets. Ambitious targets and limited public resources support the need for a large portion of projects that could be funded through green financing initiatives, tapping into a broad base of investors looking for exposure to green assets. Green financing mechanisms are a perfect fit for nations that must now balance the need for infrastructure projects with raising large amounts of capital to meet national targets and international commitments.

There is no shortage of potential green projects. In power generation alone, Africa’s potential for renewable energy dwarfs levels achieved so far on the continent. Further investment in sustainable energy infrastructure could unlock this vast potential (Figure 2).

International Developments

Financial institutions in Africa are becoming more active in facilitating green finance. The AfDB has played a major role in sustainable investment in Africa and is promoting green projects in national development planning. Between 2011 and 2015, AfDB mobilized approximately US$12 billion to support climate-resilient projects as part of its Climate Change Action Plan (CCAP).⁴ The bank’s African Climate Change Fund (ACCF)⁵ is aimed at providing access to large amounts of funding for African countries to scale up green finance. Nations across Africa are also set to benefit from the International Finance Corporation (IFC) and Amundi’s joint US$2 billion “Cornerstone” fund designed to buy green bonds issued by emerging market banks that would not otherwise attract institutional investors owing to their risk-return profiles.

Challenges for Sovereign Issuers

One of the key challenges for a first-time sovereign green bond issuer is its commitment to developing green framework legislation. Green frameworks play a key role in encouraging green finance within a jurisdiction through transparency and commitment and send an important signal to markets globally. With regional and global examples in place, African nations should continue to develop green bond frameworks and identify a pipeline of eligible green projects that could be financed under each framework. In some cases, it may be easier to begin on a small scale with a municipal issuance, rather than lead at the sovereign level. Sub- and quasi-sovereign issuers have been comparatively prolific and diverse in terms of geography, economic development and project type, further demonstrating the versatility of green bonds and their ability to be tailored to local circumstances.

In order to meet global commitments under the Paris Agreement, 33 percent of oil reserves, 50 percent of gas reserves and 80 percent of coal reserves globally may have to be left in the ground. Several African countries will need to look at scaling down their exposure to the fossil fuel industry if they are to meet their commitments. At the same time, growth will need to be achieved in other sectors to replace the revenues no longer being earned from fossil fuels. Real sustainable alternatives to fossil fuel-based power production will need to be developed, financed and implemented to meet low-carbon energy demands. Governments will need to make public policy shifts in favor of a greener and more climate-resilient economy. Government involvement is also vital for encouraging the green finance market through the creation of fiscal policy that makes holding green assets more attractive.

The extreme lack of electrical infrastructure in many parts of Africa presents an opportunity for African countries to be at the cutting edge of sustainable development, not only in the power sector. Lack of legacy infrastructure based on fossil fuels allows countries to adopt international best practices, tailored to unique African conditions. This should allow African countries to develop without the same level of environmental harm as developed Western economies experienced at the height of their use of fossil fuels.

¹ https://unfccc.int/files/meetings/paris_ nov_2015/application/pdf/paris_agreement_ english_.pdf
² The Paris Agreement requires each party country to propose strategies for achieving the goal through ‘nationally determined contributions’ ("NDCs") that must be submitted to the UNFCCC in order to track progress on meeting their targets.
³ https://www.afdb.org/fileadmin/uploads/afdb/ Documents/Project-and-Operations/Cost%20 of%20Adaptation%20in%20Africa.pdf
⁴ https://www.afdb.org/fileadmin/uploads/ afdb/Documents/PolicyDocuments/ Climate%20Change%20Action%20Plan%20 %28CCAP%29%202011-2015.pdf
⁵ https://www.afdb.org/en/topics-and-sectors/initiatives-partnerships/ africa-climate-change-fund
⁶  https://www.icmagroup.org/assets/ documents/Regulatory/Green-Bonds/ GreenBondsBrochure-JUNE2017.pdf
⁷ SEC Nigeria proposes new rule for green bonds [Federal government] to Launch First African Sovereign Green Bond in December https://www.afdb.org/fileadmin/uploads/afdb/ Documents/Project-and-Operations/Cost%20 of%20Adaptation%20in%20Africa.pdf
⁸ www.ammc.ma/sites/default/files/ AMMC%20BROCHURE%20VGB.pdf
⁹ http://www.masen.ma/en/actualites-masen/ masen-issues-moroccos-first-green-bond-91/
¹⁰ http://www.greengrowthknowledge.org/ sites/default/files/downloads/resource/ Ethiopia_Climate_Resilient_Green_Economy_ Water_Energy.pdf
¹¹ https://www.hydropower.org/sites/ default/fi les/publications-docs/2017%20 Hydropower%20Status%20Report.pdf
¹² https://www.hydropower.org/country-profi les/ethiopia
¹³ In July 2017, the City of Cape Town issued a 10-year, R1 billion green bond, which will fund adaptation and mitigation initiatives including procurement of electric buses, energy efficiency and water management.
¹⁴ https://www.jse.co.za/articles/Pages/JSE-launches-Green-Bond-segment-to-fund-low-carbon-projects.aspx | https:// www.afdb.org/fileadmin/uploads/fdb/ Documents/Generic-Documents/
¹⁵ https://www.afdb.org/fileadmin/uploads/afdb/Documents/Generic-Documents/Transition_Towards_Green_Growth_in_Mozambique_-_Policy_Review_and_Recommendations_for_ Action.pdf

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The IMF has evolved beyond its narrow focus on short-term monetary stability, emerging into a broader development-focused organization.

 

For decades, the International Monetary Fund (IMF) has played an important, if at times controversial, role in the economies of sub-Saharan Africa. Its mandate has evolved over the years from a principal focus on ensuring monetary stability and mitigating the effects of liquidity crises toward promotion of long-term macro-economic development and "social" goals. Given its increasingly interventionist approach, the IMF has necessarily played an important role in the development of sovereign debt capital markets in sub-Saharan Africa.

The IMF'S Objectives, Role and Mandate in Sub-Saharan Africa

Founded in 1944, the IMF's primary purpose from the outset has been to ensure the stability of the international monetary system. Beginning in the 1970s, the IMF's imposition of strict fiscal and economic conditionality in response to monetary crises such as the 1973 oil shock was met with criticism over what some viewed as the IMF's intrusion into the fiscal and economic affairs of developing economies. Certain commentators blamed the austerity measures required by the IMF for increasing, rather than alleviating, poverty in poorer countries in Africa and beyond. Since the 1980s, the IMF has evolved beyond its original focus on short-term monetary stability and fiscal prudence, emerging into a broader development-focused organization with objectives that occasionally overlap with those of the World Bank and other development-focused international financial institutions. The IMF's mandate was updated further in 2012, largely in response to the vulnerabilities exposed by the 2008/09 financial crisis, to include all macro-economic and financial sector issues that have a bearing on global financial stability.

    
In the late 1990s, as part of its increased emphasis on "social" goals as a primary component of its mission, the IMF renamed the Enhanced Structural Adjustment Facility, one of its key programs targeted at low-income countries, as the Poverty Reduction and Growth Facility (known since 2010 as the Poverty Reduction and Growth Trust (PRGT)). This was done to emphasize social objectives, specifically economic growth and poverty reduction, rather than short-term fiscal and monetary objectives. Much of the IMF's involvement in sub-Saharan Africa is now conducted through the PRGT (Figure 1).

    
Today, the three key pillars of the IMF's work are surveillance, technical assistance and lending through the organization's various programs, described below. Additionally, in 1996, the IMF and the World Bank jointly launched the Heavily Indebted Poor Countries (HIPC) Initiative, aimed at addressing the pressing need for debt relief among certain developing countries burdened by unsustainable debt levels. The HIPC Initiative has compelled the international financial community, including multilateral organizations and governments, to work together to reduce to sustainable levels the external debt burdens of the most heavily indebted poor countries. Thirty of the 36 HIPC debt reduction packages approved to date are in Africa.

IMF Programs in Sub-Saharan Africa

The IMF implements various types of programs in sub-Saharan Africa designed to achieve its goals of monetary stability, poverty reduction, economic growth and overall macro-economic and financial health. There are currently 19 IMF programs underway in sub-Saharan Africa, the vast majority of which (more than 80 percent) are medium-term programs at concessionary rates under the IMF's PRGT (Figure 2).

• Extended Credit Facilities (ECF): The most widely implemented program in Africa, the ECF, is the IMF's main tool for medium-term support to low-income countries facing protracted balance of payments problems. The ECF was created under the PRGT as part of reforms undertaken by the IMF to make financial support more flexible and better tailored to the diverse needs of low-income countries. ECF financing, which is extended on concessional terms, is currently interest-free, with a grace period of five-and-a-half years and a final maturity of ten years. ECF loans are accompanied by, among other things, quantitative conditions and targets used to monitor macro-economic policy, structural benchmarks that help monitor macro-critical reforms to achieve program goals, and regular program reviews by the IMF's Executive Board to assess performance under the program.
• Extended Fund Facilities: Like the ECF, the Extended Fund Facility (EFF) is a medium-term support instrument for countries facing protracted balance of payments problems. It is not targeted at low-income countries and, accordingly, the financing terms offered are less concessional than under an ECF. The interest charge under an EFF is typically a spread above the IMF's cost of funding. Also, like ECFs, EFFs are designed to address structural weaknesses and include commitments by the sovereign borrower to implement agreed policies and comply with fiscal and other metrics under a program of periodic monitoring by the IMF Executive Board.
• Stand-By Arrangements: The IMF's "workhorse" lending instrument since its creation in 1952, the Stand-By Arrangement (SBA), which was upgraded in 2009 to be more flexible and responsive to member countries' needs, has historically been the typical form of IMF assistance for both emerging and advanced economies to meet short-term or potential balance of payments problems. In Africa, only Kenya currently benefits from an active SBA agreement.
• Standby Credit Facility: The Standby Credit Facility (SCF) is similar to the SBA, but is targeted at low-income countries with short-term balance of payments needs and is interest-free. Like the ECF, the SCF is part of the PRGT and is subject to its policies.

The IMF also offers Flexible Credit Lines (FCLs), Precautionary and Liquidity Lines (PLLs) and Rapid Credit Facilities (RCFs) to countries experiencing crises or in urgent need of more flexible loans. However, none of these programs have been implemented in sub-Saharan Africa to date.

Historical Role of IMF in Sub-Saharan Africa

The format and application of the IMF's programs in sub-Saharan Africa have developed over time to meet changing needs. Over the past half-century, the IMF's influence in sub-Saharan Africa has been impacted by two chief factors: the IMF's policy evolution toward broader social and macro-economic goals; and the economic performance of sub-Saharan Africa. Given that the needs of developing countries have evolved considerably in the decades since the IMF first began offering them financial assistance, in recent years the IMF has had to re-evaluate and modernize its approach to the challenges faced by these countries when fashioning programs for them. As part of this development, IMF programs have shifted from an emphasis on large loans to address short-term balance of payments crises toward an emphasis on longer-term loans to promote development of stable monetary and macro-economic structures. The current prevalence of PRGT programs in sub-Saharan Africa is the culmination of almost four decades of program evolution, from the IMF Trust Fund in the early 1980s to the more recent emergence of ECF loans as the principal instrument of IMF policy in the region.

As would be expected, the IMF's role as "lender of last resort" to sovereigns in times of crisis means that the IMF is more active during periods of economic uncertainty and less active during periods of relative stability. For example, while newly independent African countries broadly enjoyed rapid economic progress in the 1960s without substantial IMF involvement, the 1973 oil crisis prompted the IMF to step in to help sovereigns across the sub-Saharan region address their consequential balance of payments problems.

Programs agreed by the IMF with sub-Saharan sovereigns in the wake of the 1973 oil crisis introduced the concept of loan conditionality, which served to expand the IMF's influence in the realm of fiscal and economic policy. IMF conditionality has since influenced not only sovereign behavior, but investor sentiment. As a study of IMF programs from 1992 to 2013 concluded, "countries participating in IMF programs with conditions attached, specifically performance criteria conditions,...are associated with an increase in long-term investor sentiment."¹

However, while assuaging some investors' concerns, the IMF's loan conditions have been a point of contention for others, who have argued that they are excessive, often overly restrictive and ultimately harmful to the poor. Some countries and commentators have also complained that the IMF's conditions are often imperfectly tailored to a country's particular circumstances and political conditions, limiting the ability of countries effectively to control their economic programs and imposing impracticable deadlines. The IMF has made efforts to respond to these concerns through a more tailored approach to program design and implementation.

Between 1999 and 2008, sub-Saharan Africa enjoyed long-term stable growth (approximately 6 percent per annum, according to the IMF World Economic Outlook, October 2017), leading the IMF to take a less hands-on approach to structural adjustment during this period.

While the number of IMF loans to sub-Saharan African countries decreased in the immediate wake of the 2008/09 financial crisis, more recently, weak global commodity prices have placed African economies under heightened pressure, leading to renewed IMF involvement. As global growth slowed after 2008, sub-Saharan Africa's growth remained largely on track,² but a prolonged depression in export prices for oil and commodities following the collapse of the super-cycle in 2014 had an adverse impact on commodity-dependent countries, of which there are several in sub-Saharan Africa.

Growth has slowed substantially since 2015, with sub-Saharan African economies growing, on average, at less than 1.5 percent in 2016, according to the IMF World Economic Outlook, October 2017—the region's worst performance in two decades. As a result, imbalances in exchange payments have resurged,³ along with the need for IMF intervention. Even non-resource-rich countries have felt the pressure. Countries such as Côte d'Ivoire and Kenya have faced increased borrowing costs, which weigh on loan performance and arrears across the economy. The use of ECFs, which are extended on concessional terms, has, accordingly, increased substantially in sub-Saharan Africa since the 2008/09 global financial crisis, reflecting balance of payments problems engendered by the crisis in the region.

Over time, the existence of IMF lending has become a powerful signal to investors, with research suggesting IMF program participation positively affects sovereign credit risk.⁴ Furthermore, the IMF's assessment of government policies has come to influence decision-makers in business and among Western donors.

Notwithstanding the varying degrees of financial support provided by the IMF over the years, the overall influence of the IMF has also manifested itself indirectly in Africa. This has been particularly so during times of relative stability, through the impact of its ongoing technical assistance and surveillance work in African countries—including periodic Article IV consultations. During Article IV consultations, an IMF team of economists visits a country to assess economic and financial developments, discuss the country's economic and financial policies with government and central bank officials, and transmit their views back to the relevant country's government in the form of a comprehensive report. As such, Article IV consultations are designed to enable the views and recommendations of the international community (as embodied by the IMF) to be fed back to a country in the hope that they might have a positive bearing on national policies.

2007

The year of the first major sovereign bond issue of US$750 million, 10-year offering from Ghana.
IMF

 

Current and Prospective IMF Programs Currently in Sub-Saharan Africa

There are currently 19 active IMF loan programs in sub-Saharan Africa, the total value of which is US$6.9 billion. This accounts for only 4.2 percent of the total value of IMF loans globally (US$163 billion). The total outstanding amount under these programs is approximately US$5.1 billion. ECFs account for 14 out of the 19 IMF programs currently active in sub-Saharan Africa, while there are currently two similar EFFs (in Côte d'Ivoire and Gabon), one SBA (Kenya) and two SCFs (Kenya and Rwanda) in place. The largest single package, amounting to approximately US$1.5 billion, is a pair of precautionary loan facilities for Kenya, comprising a US$1 billion SBA and a US$0.5 billion interest-free SCF. However, the country is yet to draw on either facility.

The current outlook for sub-Saharan Africa suggests the region will continue to underperform global growth averages in 2018, in contrast to the region's general outperformance prior to the commodities crisis.

IMF Program Participation and Sub-Saharan African Sovereign Bonds

Sub-Saharan African countries only started issuing sovereign bonds relatively recently. The first major issue was a US$750 million, ten-year offering from Ghana in 2007. While no strong correlation between sovereign bond performance and a country's participation in IMF programs has been apparent, it would appear that bond performance generally improves with IMF program participation, although this depends largely on the nature of the program involved and the overall debt profile of the country. While research specific to sovereign bonds is still sparse, studies on bond issues in emerging markets more broadly suggest that participation in an IMF program leads to a positive impact on spreads. However, sovereign bond yields are highly sensitive to IMF lending announcements and distress warnings, which in the short term can result in significant sell-offs and higher yields. For instance, the IMF's recent warning that Mozambique was at high risk of debt distress led to a record leap in bond yields to 19 percent, while Zambian eurobond yields briefly rose when it was announced in October 2017 that discussions between Zambia and the IMF on a prospective program had been put on hold.

The degree to which IMF program participation may result in a long-term positive effect on bond performance and pricing is influenced by the objectives of the specific program, the circumstances surrounding its implementation and the profile of the particular country. IMF programs vary, and not all programs imply that a country's economy is in trouble. More "routine" pre-crisis interventions to smooth out imbalances in balance of payments arising from external shocks do not typically impact sovereign risk in the same manner as crisis-driven interventions to address problems of debt sustainability and severe economic distress.

The impact of a country's participation in an IMF program on the yield on its sovereign bonds may be more complicated still. Research on bond issues in emerging markets since 1991 has found that spreads are typically lower in countries participating in an IMF program. However, the existence of an IMF program may, rather than mollify investors, instead signal to them that the relevant country's credit is riskier, particularly where debt-to-GDP ratios are high. Indeed, when debt-to-GDP ratios are above 60 percent, the positive impact on spreads has been shown to disappear, even in the presence of IMF lending.⁴ The possibility of default is generally considered higher for sovereigns participating in an IMF program with high debt ratios as compared to sovereigns not participating in a program, given countries requiring IMF support already face long-term vulnerability and support programs are not always sufficient to eliminate associated risks of default. By way of example, the coupons on Ghana's sovereign bonds issued before the IMF extended its first ECF to Ghana in 2015 (when the country's gross public debt as a percentage of GDP stood at approximately 71 percent) were actually lower than the coupons on sovereign bonds issued subsequent to the IMF's intervention in the country, including, notably, Ghana's October 2015 eurobond, which benefited from a partial World Bank guarantee. Unsurprisingly, the fact that a country benefits from IMF support is rarely sufficient to lift the rating of its sovereign bond out of sub-investment-grade status. Indeed, every African country with outstanding eurobond issues currently has at least one sub-investment-grade rating from the major rating agencies.

Conclusion

Historically, one of the key concerns of LPs regarding African private equity has been the number and quality of available exit routes. Illiquid domestic exchanges as well as political and foreign exchange risk have all weighed on the exit multiples that investors have hoped to achieve. However, as the African private equity market matures, the chances of achieving a successful exit have notably improved. The African Private Equity and Venture Capital Association (AVCA) and African Securities Exchanges Association (ASEA)¹ have reported a record number of PE firms in Africa exiting in 2015 and 2016 (44 and 48, respectively), which is double the numbers that were achieved a decade ago. Nor was this record exit activity confined to a small group of private equity funds. It involved 48 deals spread across 31 firms.

Furthermore, the majority of respondents in a 2016 Deloitte report² expected the volume of exits in the 12 months that followed to increase or remain the same, despite increasing challenges in the debt funding environment.

"Ninety percent of private equity investors intend to invest more in the region than they exit"

Geographical Exit Performance and Forecasts

Performance among African private equity exits is not uniform across the continent. Political and macro-economic drivers differ significantly from region to region. It is no secret that South Africa has historically been home to by far the most private equity investment, due to its more advanced and diversified economy as well as its relatively stable political platform. By both market capitalization and number of listed companies, the Johannesburg Stock Exchange (JSE) is considerably larger than all the other African bourses combined (Figures 1 and 2). This investment matured into 42 percent of the continent's exits over the past ten years, which is 13 percent more than the next four countries combined.³ While South Africa's reign as the most advanced African economy looks set to continue for at least the next few years, the general consensus is that the country's economy will continue to deteriorate in the short term, which is likely to increase exit activity and reduce multiples in the coming years.

The next region that has experienced the most private exits is West Africa. Between 2011 and 2016, West African transactions accounted for 27 percent of Africa's total deal volume compared to only 18 percent in East Africa.⁴ These transactions were not only focused in the resources sectors but also retail sectors, as profits flowed down to employees and generated a more affluent consumer base. As a result of the depressed oil prices, coupled with last year's dramatic devaluation of the Nigerian naira and its subsequent volatility, investor attention has turned elsewhere. These factors have led private equity investors to focus more on exits in West Africa than in previous years, with 11 percent of respondents to the Deloitte report stating that they are more likely to exit than invest in the short term, up from zero percent in 2015. However, the sudden and pronounced impact of the naira devaluation coupled with the oil price decline has reportedly caused a wide bid/ask spread on West Africa divestments, as sellers struggle to come to terms with the significant reduction in the dollar value being offered for their businesses. This behavioral economic factor could weigh on exit deal volumes in the short term, although this should lessen as oil prices start to stabilize.

East Africa has historically not experienced the same level of private equity investment as its neighbors to the west and south, but its more diversified (and generally oil importing) economies are proving attractive to private equity investors who are keen to rebalance away from the West. Ninety percent of private equity investors intend to invest more in the region than they exit, which is widely expected to improve buyer competition for prize assets and add upward pressure to transaction multiples in the region given the imbalance in demand and supply. Kenya has been the biggest beneficiary of this shift in attention, mostly due to its economy's limited reliance on oil—its GDP is predicted to grow in excess of 5 percent this year and to continue that pace throughout 2018.⁵

Historically, exits have been fairly evenly distributed across business sectors, with the most common sector for exits being financials with only 20 percent of the total, followed by industrials with 15 percent. More recently the industrials sector has become the sector with the most exits, comprising 21 percent of the 2016 exits, more than double the next most common sector (Figure 3).

Trade Sales

Trade sales to strategic investors continue to be the most preeminent exit route, constituting more than 50 percent of private equity exits in 2015 and 2016. These have also historically generated the highest average returns. This is expected to continue to be the case in the next 12 months, particularly in West Africa, where the expectation is that trade sales will comprise 72 percent of any contemplated exits, possibly due to subdued secondary buyout interest (sales to other private equity firms).

If one were to break down the types of strategic buyers into local, national and multinational, the mix of strategic buyers has remained fairly consistent over the past ten years. Local firms remain the most likely strategic buyer, with involvement in 42 percent of acquisitions in 2016, closely followed by multinational buyers, who were involved in 38 percent of acquisitions.

A notable feature of the evolving private equity market is the increased prevalence of auction sales, such as the sale of Brandcorp in June 2016 by Ethos Private Equity to The Bidvest Group following a competitive process. Given the strong fundraising by Africa-focused funds in recent years and the competition for quality higher-value African assets, it is likely that auction processes will become increasingly common.

Secondary Transactions

After trade sales, secondary buyouts, such as the sale of Algeria-based manufacturer Cellulose Processing by Mediterranean Capital Partners to Abraaj in 2016, account for the next largest proportion of exits, at 55 percent of deals surveyed in 2016. This is a dramatic increase from 2015, when only 20 percent of deals were secondary buyouts.⁶ Another notable trend is that the private equity buyers in these secondary transactions are increasingly international brand names. In 2016, 47 percent of secondary buyers were classed as multinational private equity firms, an increase from less than 30 percent a decade ago. With strong fundraising by international Africa-focused and global funds such as Carlyle and KKR, who made their maiden African investments in 2014, we expect that secondary buyouts will continue to be an increasingly important feature in the African private equity market.

As the quality of assets and deal sizes increase over time, we would also expect to see more sophisticated secondary transaction structures, such as "portfolio" deals, which package up several assets together to be sold to another fund, or deals that involve the breaking up of larger investments into smaller divisions for sale. Given that 75 percent of deals in the first half of 2016 were below US$250 million, it may be some time before the market develops to such a point.

Transaction Multiples

While enterprise value to EBITDA multiples for listed companies in Africa have steadily decreased from nearly 10x in the first quarter of 2014 to less than 8x in the second quarter of 2017, multiples on private equity transactions have followed the opposite path. In 2013, the average private deal multiple was sitting just above 6x, but now these multiples have almost converged on listed company multiples at around 8x. Nevertheless, there still seems to be a fairly heavy risk discount applied to African transactions when these deal multiples are compared with global transactions—since 2012, only 40 percent of private equity transactions achieved a multiple in excess of 7.5x, compared to almost 55 percent globally. This risk discount appears to decrease as transaction values increase, with the average multiple for transactions in the past five years with a deal value exceeding US$250 million being close to 9x.⁷ The rationale for this correlation of value and multiples is thought to be caused by the added stability and cash generation that come with larger companies on the continent.

In terms of regional performance, as indicated above, transaction multiples in Southern and West Africa are expected to decrease over the next 12 months⁸ as a result of decreased macro-economic forecasts. In East Africa, multiples are anticipated to increase, but only slightly due to the uptick in interest from private equity being largely cancelled out by the increased cost of debt.

Certain sectors tend to consistently achieve greater transaction multiples in Africa, despite this not being the case elsewhere. The consumer staples and discretionary sectors have recently seen the highest multiples due to evidence of a growing middle class with increasing disposable income. These sectors have also proved themselves to be more resilient across the economic life cycle and a helpful hedge in a depressed oil price environment. Factors such as these have led to more competitive bidding processes between private equity sponsors for assets in those sectors. This was apparent from the Abraaj Group's US$100 million acquisition from Emerging Capital Group in July of the Java Group, a growing coffee shop chain. It is reported that the sellers received 12 non-binding bids for this middle class demographic-focused business, a degree of interest that would previously have been unheard of. Another sector that has fared well for similar macro reasons is healthcare. As the wealth of the people increases, high-quality healthcare is close to the top of the list of priorities.

US$149 billion

The combined market value of African-operated companies listed on the London Stock Exchange, which is more than any other African exchange except the Johannesburg Stock Exchange.
African Development Bank

IPOS

Although IPOs and stock sales on public markets remain some of the most attractive exit mechanisms in the global PE industry, the converse has historically been true in African PE. Fragmented regulation, political uncertainty, underdeveloped capital markets and low levels of market capitalization compared to the developed world result in low usage of IPOs as a PE exit route: Only 1 percent of all 83 PE exits in Africa during 2014–2015 took place by way of IPOs (Figure 4).

Despite a large increase in IPO proceeds raised in 2016, African exchanges saw the lowest volume in IPO activity since 2013, with only 20 IPOs, compared to 30 in 2015.⁹ The suspension of Nigerian fintech company Interswitch's IPO plans to raise as much as US$1 billion, due to fears over the further weakening of the naira and a general shortage of foreign currency, is a good example of the challenges faced by African PE investors attempting to use IPOs as an exit route. While opportunities outside South Africa's Johannesburg Stock Exchange, Egypt's Cairo and Alexandria Stock Exchanges and Nigeria's Lagos Stock Exchange remain limited, the Abraaj Group's exit of Unimed via an IPO on the Tunis Stock Exchange in May 2016 and Actis's exit of Ugandan electricity company Umeme Ltd. via the Ugandan and Kenyan capital markets in December 2016 show that viable options do exist.

When investors decide to IPO African companies, they often opt for dual listings with international exchanges. The London Stock Exchange (and in particular AIM) is the international exchange of choice, due to its liquidity and the credibility of its governance and disclosure criteria. This is evidenced by the fact that the combined market value of African-operated companies listed in London is US$149 billion, which is more than any other African exchange except the Johannesburg Stock Exchange.

A number of initiatives have been introduced to improve the listing of shares in African companies such as: (i) the East Africa Community (EAC) stock markets integration project; (ii) the introduction of the Growth Enterprise Market Segment by the Nairobi Securities Exchange (NSE); and (iii) new mechanisms to trade and settle ordinary shares of London-listed or dual-listed Nigerian companies. As such initiatives come to fruition, we would expect that exit options on a limited number of exchanges will become more viable.

Conclusion

Despite some recent headwinds in certain African regions and sectors, the outlook for private equity investment in the continent is undeniably positive. Almost 90 percent of limited partners interviewed as part of a recent AVCA report confirmed their intention to either increase or maintain their private equity allocation in Africa over the next three years, and only 2 percent believed that over the next decade Africa will be less attractive than other private equity markets. These statistics are a clear indication that investors' concerns with the region, in particular that pivotal concern of how to successfully exit, have substantially improved.

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¹ Sources: (i) 2016 How private equity investors create value—by EY and AVCA, and (ii) ASEA
² Deloitte 's 2016 Africa Private Equity Confidence Survey
³ EY report
⁴ AVCA
⁵ Trading economics website
⁶ EY and AVCA—Cambridge Slide 9
⁷ Riscura
⁸ 2016 Deloitte SAVCA Africa Private Equity Confidence Survey
⁹ Dealogic; PwC 2016 Africa Capital Markets Watch

This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.
© 2018 White & Case LLP

In its full-year League Tables for 2017, Bloomberg Professional Services has ranked White & Case the number 1 law firm in the category "Western European Corporate High Yield Bonds - Risk: Legal Adviser - Issuer Ranked by Volume," based on the Firm advising on more than €11 billion in transactions announced in 2017.

Bloomberg also reported that White & Case's market share in the category had surged to 16.855%, a leap of nearly 13 percentage points from the Firm's 2016 market share.

In a banner year for the Firm's Capital Markets Practice, Bloomberg also recently named White & Case the number 1 law firm for advising on equity offerings and IPO transactions in the EMEA (Europe, the Middle East and Africa) region.

Adrien Dumoulin-Smith is an associate in the Firm's Capital Markets Group in London. His practice involves representing investment banks and companies on a range of cross-border capital markets transactions, including SEC registered public offerings, Rule 144A/Reg S offerings and other public and private financings.

Global law firm White & Case LLP has advised Acea S.p.A., one of the main multi-utility providers in Italy, on its €1 billion bond issuance in two tranches: €300 million floating rate notes due 2023 and €700 million 1.5% notes due 2027.

The notes have been issued under Acea's €3 billion Euro Medium Term Note Programme, listed on the Luxembourg Stock Exchange and offered and sold pursuant to Regulation S under the Securities Act.

Banca IMI S.p.A., BNP Paribas, Citigroup Global Markets Limited, Crédit Agricole Corporate and Investment Bank, Deutsche Bank AG, London Branch, Mediobanca – Banca di Credito Finanziario S.p.A., Natixis, Société Générale, UBI Banca and UniCredit Bank AG acted as joint bookrunners.

The White & Case team in Milan advised on Italian and English law and comprised partner Ferigo Foscari, local partner Paul Alexander, associate Davide Diverio and lawyer Marco Sportelli.

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Global law firm White & Case LLP has advised the bank syndicate on the €550 million 1.625% senior secured notes due 2028 issued by SIAS S.p.A., a leading Italian motorway operator.

The notes have been issued under SIAS'€2 billion Euro Medium Term Note Programme, listed on the Irish Stock Exchange and offered pursuant to Regulation S under the Securities Act.

Banca IMI S.p.A., BNP Paribas, J.P. Morgan Securities plc, Mediobanca – Banca di Credito Finanziario S.p.A. and UniCredit Bank AG acted as joint lead managers, and the syndicate also included a number of other banks.

The White & Case team advised on Italian and English law and comprised partners Michael Immordino (London & Milan) and Ferigo Foscari (Milan), local partner Paul Alexander (Milan), associate Davide Diverio and lawyer Olga Primiani (both Milan).

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Recent Developments in the Application of US Risk Retention to CLOs

On February 9, 2018, the United States Court of Appeals for the District of Columbia Circuit (the "DC Circuit Court") issued an opinion addressing Section 941 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act")¹ and the credit risk retention rules applicable to issuances of asset-backed securities (the "Risk Retention Rules")² promulgated thereunder. The DC Circuit Court held that the Risk Retention Rules do not apply to investment managers ("CLO Managers") of open-market collateralized loan obligations ("CLOs"). ³ The case was heard by the DC Circuit Court on appeal by the Loan Syndications and Trading Association (the "LSTA") of the decision from the United States District Court for the District of Columbia (the "District Court"). As a result of the decision, the ruling of the District Court was overturned and the District Court was instructed to grant summary judgement in favor of the LSTA.

The DC Circuit Court's full decision is available here.

How did the decision come to the DC Circuit Court?

When promulgating the Risk Retention Rules, the Securities and Exchange Commission and the Board of Governors of the Federal Reserve System, among other federal agencies (collectively, the "Agencies"), imposed credit risk retention requirements described in the Dodd-Frank Act on CLO Managers, despite significant industrywide pushback indicating that their approach overstepped the Agencies' legislative authority. The LSTA filed suit in the District Court arguing that the Agencies' interpretation was an unreasonable expansion of Section 941 of the Dodd-Frank Act. The District Court sided with the Agencies and granted summary judgment to the Agencies, finding that the Agencies could reasonably treat CLO Managers as being subject to Section 941 of the DoddFrank Act. The LSTA appealed the decision to the DC Circuit Court, arguing that the District Court made a mistake in interpreting the law and that a plain language interpretation of Section 941 should prevail.

What is the foundation of the legal argument?

While not mentioned in the opinion itself, the issue addressed by the DC Circuit Court is rooted in the United States Constitution and its separation of powers among the three branches of government: Congress, the Executive Branch and the Judiciary. On a basic level, the United States Constitution and the common law interpreting it provide that Congress creates the laws, the Executive Branch enforces the laws and the Judiciary interprets the laws. Congress may delegate rulemaking (and thus a limited amount of lawmaking) to the Executive Branch but the Constitution and common law impose limitations on the Executive Branch's ability to make rules that exceed the mandate from Congress. Generally, where Congress is clear and specific in its delegation, the Executive Branch must follow that delegation and any deviation from that delegation is an invalid attempt to create law. However, if a delegation from Congress is subject to interpretation (i.e. it is a broad delegation or subject to ambiguity), courts will defer to the Executive Branch's reasonable interpretation of that delegation. In this particular case, the DC Circuit Court reached a conclusion that the Agencies' interpretation of Section 941 of the Dodd-Frank Act, as applied to CLO Managers under the Risk Retention Rules, was unreasonable and, consequently, the Agencies did not have the necessary delegated authority from Congress to impose risk retention requirements on CLO Managers.

Does this mean the law is invalidated as it applies to CLO Managers?

Not just yet; the Agencies have a right to request an appeal of the DC Circuit Court's opinion and ask for the opinion to be overturned. The law is thus still "on the books."

In its original filing, the LSTA asked the District Court to invalidate the Risk Retention Rules as applied to CLO Managers. The District Court refused to grant the LSTA's motion for summary judgement. The DC Circuit Court, as a superior court to the District Court, ordered the District Court to grant summary judgment to the LSTA and thus invalidate the Risk Retention Rules as applied to CLO Managers. The District Court is required to do so, but until the District Court grants summary judgment in favor of the LSTA, the Risk Retention Rules remain in effect for CLO Managers. In practice, the District Court is unlikely to grant the summary judgment in favor the LSTA until the appeal period for an en banc rehearing at the DC Circuit Court passes. Until the District Court issues the summary judgment, the Risk Retention Rules will still apply to CLO Managers.

What is the timing of the appeal process?

Under appealable District of Columbia rules, the Agencies have 45 days to appeal the decision of the DC Circuit Court and request an en banc hearing. The Agencies also have 90 days from the entry of a judgement to request a writ of certiorari to the Supreme Court. In both cases, the Agencies do not have a right to have the appeal heard. For the DC Circuit Court, a rehearing en banc is not favored and ordinarily will not be ordered outside of two circumstances⁴ that do not appear to apply here. In the case of the Supreme Court, receiving a writ of certiorari is the exception and not the rule.

If the decision of the DC Circuit Court is not appealed and the Agencies do not otherwise indicate that they will not appeal, we believe the District Court will likely issue its summary judgment in favor of the LSTA shortly after the 45-day appeal window passes.

What is the likelihood of the DC Circuit Court's decision being overturned?

It is difficult to predict how the Agencies will respond to the judgment of the DC Circuit Court. However, we believe that it is unlikely the DC Circuit Court's ruling will be overturned on appeal for the following reasons:

• Deference to Regulators is a Hot Button. The issue decided here, while important to many of us, is not significant in the scope of administrative law, and we do not believe the Agencies will risk the possibility of a broader holding from a higher court on this particular set of facts. Under the DC Circuit Court's opinion, the Agencies may have lost the ability to impose risk retention on CLO Managers, but a broader opinion from a higher authority could restrict the Executive Branch's authority to edit, correct and supplement Congressional delegations in more meaningful circumstances affecting the power of the Executive Branch. We believe, therefore, the Agencies will likely not want to risk an unfavorable ruling that could lead to other challenges of Executive Branch actions.
• The Quality of the Decision. The written decision of the DC Circuit Court demonstrated intimate knowledge of the law as applied to the CLO market. While the circumstances and facts leading into the Risk Retention Rules and this litigation are complex, the decision of the DC Circuit Court was based upon a simple plain language reading of Section 941 of the Dodd-Frank Act. Our April 2011 client alert (available here) responding to the proposed rules of the Agencies that would become the Risk Retention Rules raised the exact legal issue framed by the DC Circuit Court and focused on almost the identical language. To those who understood the facts and the law, the DC Circuit Court's holding was a natural conclusion.
• The Decision Was Unanimous. All three judges agreed that the Agencies went beyond their authority. The unanimous conclusion, coupled with the well-written description of the facts and textual analysis, not to mention the DC Circuit Court's acknowledgment of the strong performance of the CLO market and the protections in place for CLO investors, lead us to believe that an appeal is unlikely.
• The Trump Factor. The current political environment seems more anti-regulation than pro-regulation right now. It would be surprising if the Trump administration were to pursue an appeal that would have to be based on an expansive view of a federal regulator's power to interpret a Congressional statute.

What should we do during the appeals process?

While we believe the DC Circuit Court's conclusion will ultimately remain the law of the land, there is a practical problem in the short term. Until there is absolute certainty that the DC Circuit Court's opinion will not be overturned, a securities offering that fails to comply with the Risk Retention Rules poses a risk to both the CLO Manager and the investment bank distributing the securities.

CLO Managers and investment banks must make a decision about the likelihood of the decision being overturned. It is possible that CLO Managers and investment banks will determine that the decision of the DC Circuit Court is unlikely to be overturned and will therefore move forward without a CLO Manager complying with the Risk Retention Rules. However, we believe that CLO Managers will continue to comply with the Risk Retention Rules for closings that occur prior to the expiration of the appeals process and, to the extent CLO Managers wish to preserve flexibility to dispose of retention interests purchased solely to comply with the Risk Retention Rules, we recommend including disclosure to indicate that investors should not rely upon the CLO Manager (or its majorityowned affiliate) continuing to hold any retention interest.

Can a CLO Manager's organization sell securities from transactions that have closed already?

Before selling securities purchased as retention interests in previously closed transactions, CLO Managers should consider both (1) the likelihood of the DC Circuit Court's decision being overturned and (2) the information previously disclosed to investors in the related transaction (as well as any contractual undertakings in respect of a retention interest held in a previously closed transaction). The first consideration will no longer be applicable if the judgment of the DC Circuit Court is not appealed prior to the expiration of the appeal window. The second consideration is more fact-specific. To the extent offering materials induced investors to rely upon the CLO Manager's (or its majority-owned affiliate's) investment in the CLO, a CLO Manager should make an assessment as to whether selling all or any portion of a retention interest would materially conflict with the disclosure in the offering materials for the transaction. In some cases, CLO Managers may have entered into a covenant to retain a retention interest beyond the period at which a disposition of such retention interest would be permitted under law. Such contractual restrictions should also be considered prior to any sale.

How does the DC Circuit Court's Opinion impact my Crescent refinanced deals?

If the Risk Retention Rules as applied to CLO Managers are permanently invalidated, CLO Managers seeking to refinance a transaction that was refinanced in reliance on the Crescent No-Action Letter⁵ (i.e. the original deal priced prior to December 24, 2014 and followed the requirements of the Crescent No-Action Letter) would not be subject to any restrictions imposed by the Crescent No-Action Letter. However, contractual provisions adopted in order to rely upon the Crescent No-Action Letter may restrict the ability of individual transactions to refinance. The DC Circuit Court opinion does not invalidate any contractual provisions, so we recommend that all questions about specific transactions be reviewed by CLO counsel.

What is the effect on US/EU dual compliant CLO transactions?

The DC Circuit Court's opinion only applies to the Risk Retention Rules for open-market CLOs. The risk retention regime in the European Union (and in the United Kingdom following Brexit) is not affected by the judgment of the DC Circuit Court. In addition, the documentation for many transactions structured to comply with the European Union rules requires a CLO Manager or other entities to retain retention interests issued by the issuing entity. Therefore, contractual provisions may require a CLO Manager or another party to maintain ownership of a portion of the securities issued in a CLO transaction. As the DC Circuit Court opinion does not invalidate, or relieve a party from compliance with, any contractual provisions, entities that have contracted to hold securities will continue to be bound by those contractual provisions.

If a CLO Manager were to rely on the "originator-manager" structure for compliance with EU risk retention, the CLO Manager should consider whether that structure is inconsistent with qualification as an open-market CLO for purposes of the DC Circuit's opinion and the Risk Retention Rules. The CLO Manager could be making inconsistent arguments for the EU and US if it were to claim that it should be an originator for EU purposes but not for US purposes. Perhaps a CLO Manager could credibly make such an argument based on the limited amount of assets it "originates" for purposes of EU risk retention (typically 5-10 percent of target par). If a CLO Manager were to determine that the Risk Retention Rules applies because of its originating activities, from an economic perspective compliance with the EU risk retention rules and the Risk Retention Rules is not much different. However, the Risk Retention Rules have additional disclosure requirements for the fair value calculation required by the Risk Retention Rules and it's possible the fair value calculation changes slightly how much must be retained by the CLO Manager.

What is an "open-market CLO"?

The DC Circuit Court's opinion is limited to open-market CLOs, which it described as CLOs that "…acquire their assets from, as the name implies, arms-length negotiations and trading on an open market." For most broadlysyndicated CLOs, the articulated standard should be easily met. For European compliant transactions relying on the "originator-manager" structure, however, the organization will need to consider whether that structure would cause the transaction in question to no longer qualify as an open-market CLO for purposes of US law.

Is the decision product specific to CLOs?

This question likely will come up from time to time, including for CLOs that have a bond bucket (e.g. European CLOs issued into the United States and certain US CLOs that are not structured to be loan securitizations). While the holding of the decision only applied to open-market CLOs, the reasoning of the case focuses on the activity of the CLO Manager in selecting the assets and not the type of assets underlying the CLO. In addition, in dismissing the Agencies concerns over the creation of a loophole for "CDO squared deals", the DC Circuit Court dismissed the Agencies argument and noted that "any CLO⁶ so constituted must, by definition, have acquired the [asset back securities] in open-market purchases at the direction of the investors." This statement indicates that a bond may be included in a transaction and that the decision likely applies to any structure where a collateral manager selects the assets on the open-market.

Does the ruling apply to balance sheet CLOs⁷ or those who originate the loans for the CLO?

No. The DC Circuit Court's opinion only applies to CLO Managers who purchase loans in the open market on behalf of the issuing entity. If a CLO Manager is not independent from the loan originator, then the DC Circuit Court's opinion would not apply to that CLO Manager. In addition, if a CLO Manager holds loans for its own account prior to transferring the loans to the issuing entity, the DC Circuit Court's opinion may not apply to that CLO Manager. We advise any CLO Managers who are related to a loan originator or who are in an agency relationship with a loan originator to discuss the particular facts and circumstances with CLO counsel to determine whether the Risk Retention Rules applies to them.

What can the Agencies do under their US risk retention rule-making authority?

The DC Circuit Court's opinion held that the Agencies lacked Congressional authorization to impose credit risk retention upon CLO Managers. We do not believe that the Agencies will use their rule-making authority to circumvent the DC Circuit Court's holding and attempt to impose credit risk retention under Section 941 of the Dodd-Frank Act on CLO Managers in a different manner.

Importantly however, the opinion did not conclude that the risk retention requirements described in Section 941 of the Dodd-Frank Act are inapplicable to CLO transactions. In fact, the DC Circuit Court noted that CLOs could still be captured under Section 941 by noting the Agencies eliminated the "issuer" as a person who could "retain" credit risk as specified under Section 941 of the Dodd-Frank Act. Perhaps the Agencies will resurrect the issuer as an entity that can retain credit risk and attempt to impose the risk retention requirements of Section 941 of the Dodd-Frank Act on CLOs through other means, including by requiring the CLO issuing entity to maintain a certain portion of its capital as equity capital.

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¹ The Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 124 Stat. 1376 (2010).
² Credit Risk Retention Rule, 79 Fed. Reg. 77,601 (Dec. 24, 2014).
³ The DC Circuit Court defined open-market CLOs as CLOs that "acquire their assets from, as the name implies, armslength negotiations and trading on an open market."
⁴ These circumstances include (1) the panel decision conflicts with a decision of the Supreme Court or the DC Circuit Court and en banc consideration is necessary for maintaining uniformity of the court’s decisions and (2) the proceeding involves a question of exceptional importance (e.g. the panel decision conflicts with a decision of a sister circuit).
⁵ The Response of the Office of Structured Finance of the Division of Corporation Finance of the Securities and Exchange Commission, dated July 17, 2015, with regards to the letter of Crescent Capital Group LP (the “Crescent No-Action Letter”).
⁶ While the DC District Court used “CLO” here, based on the surrounding context, we believe they meant to say "CDO."
⁷ The DC Circuit Court defined balance sheet CLOs as those that are “usually created, directly or indirectly, by the originators or original holders of the underlying loans to transfer the loans off their balance sheets and into a securitization vehicle.”

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Lisa Cossi is an associate in the Americas Capital Markets group, focusing on cross-border transactions involving Brazil and Latin America. She has assisted on offerings of debt and equity securities, which include Rule 144A and Regulation S offerings, representing issuers and underwriters.

LatinFinance magazine named three transactions on which White & Case advised among its "Deals of the Year" in its 2017 LatinFinance Deals of the Year Awards, announced in the magazine's January/February 2018 issue.

The Deals of the Year Awards "recognize this year's top transactions and success stories from Latin America and the Caribbean," according to LatinFinance. The 2017 winners were selected by the LatinFinance editorial team through research on deals closed between October 1, 2016 and September 30, 2017.

The winning deals on which White & Case advised were:

Quasi-Sovereign Bond of the Year
White & Case led work for leading global financial institutions, as the joint bookrunners and the co-manager, in the inaugural cross-border debt security issuance by Petróleos del Perú-Petroperú S.A., the Peruvian government-owned oil & gas refining company. The company offered and sold US$2 billion in bonds—the largest-ever offering by a Peruvian issuer. The proceeds of the offering are intended to be used by Petroperú for a large-scale upgrade and modernization of the Talara Refinery, the country's key oil & gas infrastructure project.

Corporate High-Yield Bond of the Year
White & Case led work for the joint book-running managers in the US$500 million "green bond" offering by Klabin Finance, the Luxembourg subsidiary of Klabin. The proceeds were used to finance and/or refinance eligible green projects.

Cross-Border M&A Deal of the Year
White & Case led work for China Three Gorges Corporation (CTG), through its subsidiaries CTG International and CTG Brasil, in its agreement to purchase all of the equity interests in a subsidiary of Duke Energy Corporation (Duke Energy Brazil) that holds ten hydroelectric plants in Brazil for approximately US$1.2 billion in cash and the assumption of debt.

Global law firm White & Case LLP has advised the bank syndicate on the inaugural €1 billion bonds issue by Elis, which comprises two series of bonds: €650 million bonds with a five years maturity, and €350 million bonds with an eight years maturity.

It is the first bonds issue by Elis under its EMTN programme, which was established in January 2018 and on which White & Case also advised the bank syndicate. The proceeds of the bonds issue will be used to refinance the bridge loan put in place for the Berendsen acquisition, and for general corporate purposes.

The bonds were issued via a private placement with institutional investors. BNP Paribas, Crédit Agricole Corporate and Investment Bank and HSBC acted as joint global coordinators.

Elis is a multi-service leader in the rental and cleaning of flat linen, work clothing and hygiene and welfare equipment in Europe and Latin America, with revenues in 2017 of €2.2 billion. Its shares are admitted to trading on the regulated market of Euronext Paris.

The White & Case team in Paris which advised on the transaction was led by partners Séverin Robillard and Thomas Le Vert, and included partner Alexandre Ippolito with support from associates Tatiana Uskova, Petya Georgieva and Guillaume Keusch.

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Kulani Jalata is an associate in the Capital Markets group in New York. Ms. Jalata's practice focuses on the representation of companies and underwriters in debt and equity securities offerings and securitizations. Ms. Jalata has worked on mergers and acquisitions and bank finance matters.

The financial services industry is undergoing a radical transformation. Companies that can navigate this uncertain terrain will retain a competitive edge.

On February 21, 2018, the Securities and Exchange Commission ("SEC") issued an interpretive release¹ providing long-awaited guidance (the "New Guidance") to assist public companies in preparing disclosures about cybersecurity risks and incidents.² Significantly, the New Guidance discusses cybersecurity and its related disclosure requirements not merely in terms of network threats and vulnerabilities, but as a key element of enterprise risk management in which program development and oversight responsibilities move straight "up the corporate ladder" to officers and directors.

Various divisions of the SEC increasingly have been active in the cybersecurity arena, including instituting a cybersecurity examination initiative for broker-dealers and investment advisors³, bringing cybersecurity-related enforcement actions,⁴ issuing cybersecurity alerts,⁵ and offering updated guidance to funds and advisors.⁶ Prior to the New Guidance, however, publicly traded companies primarily looked to the SEC’s Division of Corporation Finance ("Corp Fin") for regulatory cues, and in particular to Corp Fin’s cybersecurity disclosure guidance of 2011 (the "2011 Guidance")⁷. Although the 2011 Guidance made no mention of officers, directors, or risk management, it did clearly focus on the need for public companies to disclose cyber risks and their related impact within the existing disclosure framework.

Now, the SEC as a whole has decided to speak. What has changed over the past seven years? In the view of the SEC, both a lot and a little. While network compromises and data breaches continue to occur with increasing frequency and severity, the SEC believes there should have been, but has not been, a corresponding rise in the level of adequate risk disclosure. The facts seem to bear this out. For example, while cybersecurity disclosures have increased fourfold from 2012 to 2016, as of October 2017, only 38% of US public companies cited cybersecurity as a risk factor in their annual and quarterly SEC filings⁸. In connection with the issuance of the New Guidance, Chairman Clayton stated that he believes that "providing the SEC’s views on these matters will promote clearer and more robust disclosure by companies about cybersecurity risks and incidents, resulting in more complete information being available to investors."⁹

Recognizing that "an evolving landscape of cybersecurity threats" poses "grave threats to investors, our capital markets, and our country", the New Guidance reflects the SEC’s belief that "it is critical that public companies take all required actions to inform investors about material cybersecurity risks and incidents in a timely fashion." In addition to "reinforcing and expanding upon the…2011 [G]uidance" with respect to disclosure, the New Guidance also addresses: (i) the importance of maintaining comprehensive policies and procedures related to cybersecurity risks and threats, and (ii) the application of insider trading prohibitions and obligations to refrain from making selective disclosures of material nonpublic information ("MNPI") in the cybersecurity context.

Disclosure Obligations

Consistent with the 2011 Guidance, the New Guidance emphasizes that the materiality of cybersecurity risks and incidents informs the determination as to the disclosures that must be made in registration statements under the Securities Act of 1933 and the Securities Exchange Act of 1934 ("Exchange Act") and periodic and current reports under the Exchange Act. While existing disclosure requirements do not specifically reference cybersecurity risks and incidents, the New Guidance re-emphasizes that an obligation to disclose such risks and incidents could arise in a number of contexts, depending on a company’s particular circumstances.

Specifically, the New Guidance encourages public companies to consider their obligation to disclose cyber risks and incidents as they relate to their risk factors, MD&A, description of business, legal proceedings and financial statement disclosures, along with their disclosures regarding the role of the company’s board of directors in the risk oversight of the company. In addition to specific disclosure requirements, companies also must disclose "such further material information, if any, as may be necessary to make the required statements, in light of the circumstances under which they are made, not misleading."

Materiality is inherently a facts and circumstances determination; the New Guidance indicates that in the context of cybersecurity risks and incidents, materiality depends upon their nature, extent, and potential magnitude, as well as the range of potential reputational and financial harm. Companies also should consider the impact on business relationships, the possibility of legal or regulatory investigations or actions, and the occurrence of any prior incidents. Although companies are required to disclose cybersecurity risks and incidents that are material to investors, the New Guidance reiterates that companies are not expected to disclose publicly specific, information about their cybersecurity systems or vulnerabilities that could compromise their cybersecurity efforts and serve as a roadmap for hackers.

Disclosure Controls and Procedures Related to Cyber Risks and Incidents

The New Guidance encourages companies to adopt comprehensive policies and procedures related to cybersecurity and to assess their compliance regularly, including the sufficiency of their disclosure controls and procedures as they relate to cybersecurity disclosure. Specifically, the New Guidance advises that "[c]ontrols and procedures should enable companies to identify cybersecurity risks and incidents, assess and analyze their impact on a company’s business, evaluate the significance associated with such risks and incidents, provide for open communications between technical experts and disclosure advisors, and make timely disclosures regarding such risks and incidents."

Therefore, while a specific reference to cybersecurity may not be required, a company’s conclusions with respect to the effectiveness of disclosure controls and procedures must be informed by management’s consideration of cybersecurity risks and incidents. The New Guidance also notes that the principal executive officers and principal financial officers responsible for certifying effectiveness of disclosure controls and procedures under the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley") should take into account the degree to which cybersecurity risks impact the effectiveness of those controls and procedures.

Insider Trading

The New Guidance reminds companies and their directors, officers, and other corporate insiders that information about cybersecurity risks and incidents, including vulnerabilities and breaches, may constitute MNPI, and that trading in the company’s securities while in possession of such MNPI would violate antifraud provisions of the US federal securities laws.

Regulation FD and Selective Disclosure

In addition to encouraging companies to continue to use Forms 8-K and 6-K to disclose the occurrence and consequences of material cybersecurity incidents promptly, which the SEC believes reduces the risk of selective disclosure, as well as the risk that trading in such companies’ securities on the basis of MNPI may occur, the New Guidance reminds companies that they may also have disclosure obligations under Regulation FD in connection with cybersecurity matters. Namely, companies should not selectively disclose MNPI regarding cybersecurity risks and incidents to Regulation FD enumerated persons before disclosing that same information to the public, and any unintentional selective disclosures will require prompt public disclosure in compliance with Regulation FD.

Mergers & Acquisitions

The New Guidance indicates that companies involved in business combination transactions should disclose cybersecurity risks "that arise in connection with acquisitions." Meeting the SEC’s expectations in this regard will require, among other things, that acquiring companies consider the scope of their cybersecurity due diligence efforts and the level of expertise of those performing it.

Practical Considerations

While much of the New Guidance builds upon the 2011 Guidance, its issuance also may indicate that the SEC’s "careful [] monitor[ing of] cybersecurity disclosures" will lead to cyber-related enforcement actions and insider trading investigations. In light of the New Guidance, companies are advised to consider the following:

Disclosure

Companies should review their disclosure to ensure it accurately reflects the company’s cybersecurity risk profile and the potential impact and costs of cybersecurity efforts and initiatives and related risks. Disclosure should be tailored and company-specific, and should convey that the company has been thoughtful about these issues and will remain engaged on cybersecurity issues as they evolve. Companies should be mindful of the following with respect to the specified portions of their disclosure:

• Risk Factors: Evaluate how to communicate risks properly in light of the probability and magnitude of past and potential future cybersecurity events; consider disclosure regarding adequacy of preventive actions; discuss material industry, customer and/or supplier-specific risks that may increase the potential impact; discuss material risks related to insurance and other costs; consider disclosure regarding material risks of reputational harm; and consider disclosure regarding compliance with any applicable regulatory requirements.
• MD&A: Consider the costs of ongoing cybersecurity efforts and the consequences of cybersecurity incidents when analyzing the events, trends and uncertainties that are reasonably likely to materially impact financial condition or liquidity.
• Business Description: Include disclosure of cybersecurity incidents or risks that materially affect products, services, competitive conditions or business relationships, with additional consideration given to any unique cybersecurity risks that may stem from acquisitions.
• Financial Statements: Information about the range and magnitude of cybersecurity events, such as investigation and remediation costs, claims, loss of revenue, diminished future cash flow, impairment of assets, and increased financing costs, should be included in financial statement disclosure on a timely basis.

Disclosure Timing

Despite the 2011 Guidance, disclosure related to cyberattacks has been limited, as companies are reluctant to publicize specific attacks, particularly before they have undertaken a thorough accounting of any such incident and its potential implications. However, while recognizing that "some material facts may not be available at the time of initial disclosure", the SEC has indicated that it expects companies to report a material cyber incident promptly. Significantly, the SEC expressly recognized that cooperating with law enforcement could be an appropriate basis for narrowing the scope of disclosure. Regardless, the New Guidance stresses that a lengthy ongoing internal or external investigation is not, on its own, an acceptable basis for avoiding disclosure of a material cybersecurity incident. Separately, companies should ensure they have a protocol in place to quickly inform necessary personnel, including internal and outside legal counsel, and to determine the appropriate timing, nature and form of potential disclosures and breach notifications in case of a cybersecurity incident.

Crisis Management Team and Incident Response Plan

In light of the need to respond to a cybersecurity incident quickly, companies should have a crisis management team in place, including representatives from investor relations, IT, legal and management, in order to: (i) respond quickly and effectively to a cyber incident, (ii) gather information in order to craft accurate disclosure, and (iii) address shareholder concerns when information is released to the market. Companies should seek the advice of qualified cyber counsel in order to formalize, organize, update, and test the adequacy of their incident response plan. Key personnel, including those responsible for corporate communications, should be trained and kept updated on their responsibilities in the event of a cybersecurity incident.

Correcting or Updating Disclosure

The New Guidance reiterates that companies may have a duty to correct prior disclosure about a cybersecurity event that the company later determines was not accurate (or omitted a material fact about such an event) at the time it was made, or a duty to update disclosure that becomes materially misleading after it was made and is still being relied on by reasonable investors. Companies should consider the need to revisit or refresh previous disclosures, including during the process of investigating a cybersecurity incident.

Risk Management and Oversight

Ensuring the adequacy of a company’s cybersecurity measures is a critical part of a board’s risk oversight responsibilities. To this end, directors must understand the nature of cybersecurity risk and prioritize their oversight of cyber preparedness, detection, response, and disclosure. Boards should receive periodic updates from management and any relevant expert advisors on the company’s compliance with applicable standards. Further, board oversight of cyber risk management, including how the board engages with management on cybersecurity issues, should be disclosed to the extent cybersecurity risks are material to the business. Trusted third party advisors, including outside counsel operating under available attorney-client privilege, can be a valuable resource in educating and assisting companies in organizing their enterprise risk management and oversight to incorporate cybersecurity issues, and in evaluating the adequacy of disclosures.

Disclosure Controls and Procedures

Companies should assess whether they have adequate disclosure controls and procedures in place to ensure that cybersecurity risks and incidents are timely identified, evaluated, and reported up the corporate ladder. Companies should consider adding a technical expert to their subcertification and/or disclosure committee procedures, or include regular consultation with appropriate technical personnel and trusted advisors.

Insider Trading Policies and MNPI: Pre-Clearance and Event-Specific Blackouts

Companies should consider including appropriate safeguards in their insider trading policies and procedures to protect against directors, officers, and other corporate insiders trading on the basis of MNPI before public disclosure of a cybersecurity incident is made. Companies should ensure there are procedures in place to relay cybersecurity events in a timely manner to the individual who administers the company’s preclearance policy. In addition, companies should consider providing for event-specific blackouts to allow the company to impose trading restrictions when companies are aware of cyber incident related MNPI. In this regard, companies should consider adding cyber events as a specific example of MNPI to their insider trading policy, in order to make clear that knowledge of such events may qualify as MNPI in the context of insider trading.

Closing Thoughts

The SEC’s New Guidance has, in no uncertain terms, declared that cybersecurity is not an IT issue, but a board issue; cybersecurity is not a technical support function, but a risk management function. As a result, officers and directors should be especially mindful of the SEC’s new focus on cybersecurity as an integral component of a company’s broader enterprise-wide risk management structure, including the SEC’s interest in how the board engages with corporate executives to oversee cybersecurity risk. Cybersecurity programs must be designed (with respect to policies, procedures, and implementation) to ensure that principal executive officers and principal financial officers are properly informed to make related disclosure decisions and required certifications under Sarbanes-Oxley. In addition, a corporation’s attention to cybersecurity should extend well beyond regulatory compliance. In today’s global business environment, ensuring adequate security of a corporation’s networks and sensitive data is an important business driver, and therefore an important component of financial growth and value.

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¹ Available here.
² The New Guidance does not address the specific implications of cybersecurity to other regulated entities under the federal securities laws, such as registered investment companies, investment advisers, brokers, dealers, exchanges, and self-regulatory organizations.
³ More information available here.
⁴ See the SEC’s Cybersecurity Enforcement Actions, available here.
⁵ See, for example, here and here.
⁶ See IM Guidance Update, Cybersecurity Guidance, available here.
⁷ The 2011 Guidance is available here.
⁸"The Cyber Risk Disclosure Groundswell: Corporate Governance Response in the Specter of SEC Oversight", a study by Intelligize, available here.
⁹ Available here.

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© 2018 White & Case LLP

Global law firm White & Case LLP has advised Icade on its €600 million bond issue, with a maturity of ten years and an annual coupon of 1.625%.

Icade has simultaneously launched a tender offer on three outstanding bond issues, financed with the proceeds of the new bond issue. The bonds will be admitted to trading on the regulated market of Euronext Paris.

The bonds were issued through an international private placement to institutional investors. Crédit Agricole CIB, CM-CIC Markets Solutions, HSBC, Natixis and Société Générale Corporate & Investment Banking acted as joint bookrunners on the new issue.

As an investor and a developer, Icade is an integrated real estate player with a portfolio value of €10.8 billion at December 31, 2017. Icade shares are admitted to trading on the regulated market of Euronext Paris.

The White & Case team in Paris that advised on the transaction was led by partners Thomas Le Vert and Séverin Robillard and included partner Alexandre Ippolito, with support from associates Boris Kreiss, Guillaume Monnier and Guillaume Keusch.

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European Leveraged Finance Alert Series: Issue 2, 2018

Following the release of White & Case’s 4th annual EMEA Leveraged Finance Report in January, this Alert discusses certain key legal issues when structuring leveraged finance deals in France, where a total of over €65 billion of loans and €14 billion of bonds were issued in 2017.

Upstream Credit Support

One of the principal legal issues impacting the structuring of debt financings in France is the restrictions on granting upstream credit support.

Corporate Benefit

The granting of guarantees by French subsidiaries of the debt of their French parent/sister companies raises significant legal issues. First, under French corporate benefit rules, a company is required to use its assets and credit solely to further its own corporate purposes and for its own benefit (or that of its subsidiaries). The granting of an upstream/cross-stream guarantee by a French subsidiary would violate this rule if that subsidiary cannot demonstrate that it derives a benefit from the guarantee. The chairman, the directors and other executives may be exposed to civil sanctions (on grounds of mismanagement) or even criminal sanctions (on grounds of misuse of the corporate assets or credit of the company or breach of confidence) for failure to comply with these requirements and the guarantee or security may be nullified by French courts.

In order to minimize the risk that an upstream guarantee would violate this rule, the market practice is to contractually limit the guarantee obligations of the French subsidiary guarantor to an amount equal to the amount of the proceeds of the guaranteed parent/sister company debt (whether under a facility or debt securities) that is directly or indirectly on-lent to that guarantor by the parent/sister company borrower under intra-group loans and that is outstanding from time to time. The on-lent proceeds are considered to represent the benefit received by the subsidiary guarantor in exchange for the guarantee that it grants up to the amount of such proceeds. If no proceeds from a parent/sister company borrowing are on-loaned to a particular subsidiary (as in the case where that subsidiary has no debt that needs to be refinanced with such proceeds), any guarantee of such parent/sister company borrowing by that subsidiary would be potentially legally voidable.

Financial Assistance

French financial assistance rules pose another obstacle to the granting of upstream guarantees by French subsidiaries. A company incorporated as a société par actions (SAS or SA) cannot advance funds, grant loans or grant security interests or guarantees of debt incurred by a third party to finance the purchase of the shares of that company or any of its parent companies. Guarantees or security interests granted in breach this rule may be nullified by French courts and may even invite criminal sanctions. Therefore, if an entity is acquiring a French SA or SAS, it is not possible for the latter or any of its subsidiaries to guarantee the debt incurred by the acquiring entity to finance the acquisition.

Interest Deductibility

Another consideration in the structuring of upstream credit support in French issuer/borrower deals stems from French thin capitalisation rules related to interest deductibility. Although not strictly an obstacle to the granting of upstream credit support, these rules may limit the tax deductibility of interest on debt of a French borrower/issuer that is guaranteed by related parties (including subsidiaries). According to Article 212 of the French Tax Code ("FTC"), restrictions on interest deductibility apply to interest on debts of any kind due by one corporate entity to another if these entities are related within the meaning of Article 39-12 of the FTC – i.e., when there is a subordination relationship between them. Article 212 II of the FTC provides that, subject to certain exceptions, a loan extended by a third party to a French borrower would be treated as a loan granted by a related party for tax purposes ("tainted debt") if it is directly or indirectly guaranteed by a related party such as a subsidiary. Therefore, to the extent that the debt of a French company is guaranteed by its subsidiaries, that debt is subject to thin capitalisation limitations on interest deductibility. Loans extended to refinance outstanding borrowings that become due because of a change of control of the borrower are not caught by the thin capitalisation rules.

In the case of tainted debt, the amount of interest that would be deductible is capped at the highest of the three following cumulative limits: (i) the interest on such debt to the extent such debt does not exceed 1.5 times the borrower’s net equity, (ii) 25% of readjusted current profit before tax and (iii) the amount of interest received by related parties. In practice, if the debt-to-equity ratio of the borrower is lower than 1.5 to 1.0, the full amount of interest will be deductible. Non-deductible interest can be carried forward with a discount of 5% each year and deducted during the following fiscal years when the company is no longer thinly capitalised. Net interest expenses that remain deductible after application of thin capitalisation rules are deductible only up to 75% of their amount, if they are higher than €3 million.

Taking Security in France

The concept of floating charges or other all-assets security arrangements does not exist in France. Therefore, security has to be taken on an asset-by-asset basis. In French leveraged finance transactions, the most commonly taken security is over shares (and other securities), receivables and bank accounts. Other assets (including intellectual property, inventory or ongoing business) can also be included in the security package on a case-by-case basis. For reasons relating to cost, security is not usually taken over real estate. Perfection formalities (e.g. dispossession of the pledged asset, registration, notification) would depend on the type of security interest and the nature of the pledged asset.

In a typical English law secured financing, the security agent acts on trust for the creditors to whom the secured liabilities are owed. However, English law trusts are neither recognized nor enforceable in France. Several years ago, the French law trusts regime was created but not sufficiently utilized because of the burdensome nature of, inter alia, registration and transfers required in the context of a syndicated financing. Nonetheless, due to recent changes in French law, it is now possible to appoint a security agent pursuant to a simplified security agent regime in order to take and enforce security for the benefit of the creditors of the secured obligations.

Before such changes to French law were enacted, the pledgee of a security interest under French law and the creditor of the claim secured by that security interest had to be the same person and security could not be created in favour of a security agent that was not itself a direct creditor of the secured liabilities. For this reason, finance documentation for French borrowers/issuers sometimes provided for the creation of English law "parallel debt" obligations in favour of the security agent which mirrored the obligations of the underlying debt owed by such borrower/issuer. The parallel debt had the same principal amount and was payable at the same times as the underlying debt, and any payment on the underlying debt would discharge the corresponding obligation under the parallel debt (and vice versa). Any French law pledge would secure the parallel debt and not the underlying debt. Such parallel debt structure can still be implemented in transactions where the security agent does not act pursuant to the simplified security agent regime described above.

Creditors’ Committees

French law bankruptcy considerations may also influence the structuring of financings by French borrowers/issuers. In general, in the event of a French law safeguard (sauvegarde) or rehabilitation (redressement judiciaire) proceeding opened in respect of a French company, the creditors of the relevant company will be grouped by the court-appointed administrator (on the basis of the claims that arose prior to the judgment commencing the proceedings) into the following creditors’ committees and bodies:

• one committee for credit institutions or similar institutions and other entities that have made loans or advances to the debtor (or acquired loans or advances owed by the debtor), including entities that are sponsor affiliates (the "credit institutions committee");
• one committee for suppliers having a claim that represents more than 3% of the total amount of the claims of all the debtor’s suppliers and other suppliers invited to participate in such committee by the court-appointed administrator (the "major suppliers committee" and, together with the credit institutions committee, the "creditors committees" and each a "creditors committee"); and
• if there are any outstanding debt securities (such as bonds or notes), bondholders vote not in a committee but pursuant to a single general meeting of all holders of such debt securities (the "bondholders general meeting").

For a proposed plan to be adopted, it must be approved by creditors on each creditors committee and the bondholders general meeting representing two-thirds of the total outstanding liabilities of all creditors on such creditors committees and bondholders general meeting. All creditors on each creditors committee or the bondholders general meeting vote on a one-euro-one-vote basis regardless of any differences in rankings and security as between the claims of such creditors and whether or not the voting creditor is an affiliate of the borrower/issuer, provided that the proposed plan must take into account any subordination agreement entered into prior to the opening of the safeguard or rehabilitation proceedings.

Because of the treatment of voting rights in the context of French safeguard or rehabilitation proceedings, the lenders in a leveraged financing by a French company would typically seek to ensure that they have a two-thirds voting majority on the credit institutions committee at all times. To this end, the contractual documentation governing the financings would usually restrict the ability of sponsors and members of the borrower group to become creditors of indebtedness owed by members of the borrower group. This is accomplished by either limiting the amount of such indebtedness that can be owed to such entities or by structuring sponsor or intra-group debt in the form of bonds (if the underlying debt is in the form of bonds, and vice-versa), thereby relegating the sponsor and intra-group creditors to the bondholders general meeting (if the relevant financing is bank debt) or the credit institutions committee (if the relevant financing is bond debt). In addition, in bond financings involving side-by-side senior secured and senior subordinated tranches, limits on redemptions may be contractually imposed to ensure that the senior secured tranche represents at all times at least two thirds of the total amount of outstandings under all bonds and notes issued by the issuer.

Contractual agreements relating to the exercise of the votes in committees have recently been recognized under French law. Under legislation adopted in 2014, each member of a creditors committee or of the bondholders general meeting must, if applicable, inform the court appointed administrator of the existence of any agreement relating to (i) the exercise of its vote or (ii) the full or total payment of its claim by a third party as well as of any subordination agreement. The court-appointed administrator would then make a proposal for the computation of its voting rights in the relevant creditors committee/bondholders general meeting. In the event of disagreement, the matter may be ruled upon by the president of the Commercial Court in summary proceedings at the request of the creditor or of the court-appointed administrator. Therefore, there is a greater likelihood today that the voting arrangements set out in intercreditor agreements, for instance, governing creditors’ respective rights under a particular financing will be recognized in a French safeguard proceeding. Nonetheless, the above-described practices of restricting the ability of sponsors or group members to become creditors of the issuer/borrower or of requiring certain intra-group loans to take the form of bonds is still current in the French market.

Other topics may be relevant for the purposes of structuring debt financings in France (e.g. banking monopoly).

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• 57% of senior mining experts believe that mining equities will outperform the broader market.
• 52% of surveyed mining and metal leaders are expecting a supply response from miners this year.
• More than 30% of senior experts said M&A will spur growth this year, while 19% opted for IPOs instead.
• When asked how they thought the Chinese market would play out this year, 34 % of senior mining experts said steady growth would underpin prices

Research by global law firm White & Case LLP  has revealed that more than half (57%) of surveyed mining and metal decision-makers believe that mining equities will outperform the broader market for the third year in a row.  Mining equities outperformed the broader market in 2017 for a second year, primarily due to a surge in commodity prices driven by robust global economic growth and the gathering pace of the battery revolution.

This new research demonstrates confidence that the recovery cycle is firmly established. Growth is back on the agenda with multi-year highs observed across many metals, triggering a supply response as well as a focus on true growth transactions – portfolio upgrades, acquisitions, greenfields.

John Tivey, White & Case Global Head of Mining and Metals, commented, "In 2018, mining and metals companies are pushing ahead to identify new opportunities internationally to support their forward growth strategies. We believe that the return to growth will bring opportunities for value creation, calling for mining and metals companies to prioritise resilient, multicycle portfolios that offer sustainable returns to shareholders."

"Confidence that growth is returning is now cemented in the marketplace. The junior sector will attract new investment as exploration projects become attractive opportunities again. Rising commodity prices and global growth trends will promote asset development."

Of the 2017 rally areas predicted to spur growth this year, more than 30% of respondents stated that the opportunities existed within M&A, while only 19% opted for IPOs. While the growth opportunities were clear, there was a tie between what the industry would choose in the next growth phase, with 42% of respondents opting for M&A, and the same figure for brownfield development. When asked what type of M&A would be prevalent in 2018, 80% said 'opportunistic asset-driven deals,' with only 3% expecting hostile approaches.

The survey highlighted the intensified demand for electric vehicles and storage batteries raw materials, a trend which is likely to continue, with lithium and cobalt leading the pack, closely followed by copper and nickel.

Rebecca Campbell, a partner in White & Case's Mining and Metals practice, said, "There will be a rush by car companies to tie up supply deals with those miners producing lithium and other minerals such as cobalt - viewed as vital for EV car batteries. There is also an expectation that battery makers will increasingly look at nickel as a cheaper and easier-to-source alternative to cobalt."

Whilst 2018 will see continuous investment in growth across the industry as demand holds and/or increases further, it is what happens in China, which consumes half the world's raw materials, that will matter. China's move to curb pollution has seen a reduction in the supply of aluminium, which could register a significant deficit in markets outside China.

John Tivey, White & Case Global Head of Mining and Metals, added: "We foresee China's focus on pollution and reform to remain through 2018 and, together with producer discipline outside China, we can expect elevated commodity prices."

Asked how they thought the Chinese market would play out this year, 34% of the survey respondents said steady growth would underpin prices, while 28% said policy changes would dampen price growth. More than 37% expected Chinese performance to be on a par with performance in 2017.

Opportunities are also seen in Africa, as more than two-thirds of respondents painted a positive picture of African commodities in 2018, with one-third (32%) seeing an 'improving picture' and 35% seeing 'more of the same' for the year ahead. Botswana specifically was by far viewed as the most favourable African territory for Western business.

In a new era of 'smart' mining that offers scope to boost efficiency and productivity, the deployment of blockchain technology in the global mining sector is another space to watch in 2018.

Rebecca Campbell, a partner in White & Case's Mining and Metals practice, commented: "Advances in disruptive technologies continue to change the mining landscape. Blockchain, the technology better known for powering bitcoin, is already being used in the diamond sector, and has the potential to completely revolutionise the mining industry more broadly, with its ability to create an unchangeable record of transactions along a supply chain, ensuring secure and sustainable raw materials to end users."

"One thing is for sure, 2018 will be anything but boring as the industry enters the next cycle with renewed confidence. The mining and metals industry is leaner and fitter than at any time since the downturn. It remains to be seen how and where its growing surplus cash pile is deployed in the next 12 months."

The entire report can be viewed by clicking here.

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Global law firm White & Case LLP has advised a bank syndicate led by BNP Paribas, HSBC, J. P. Morgan and UniCredit on the €275 million high yield bond issuance by Nordex, a wind turbine manufacturer.

The high yield bond has a maturity of five years and a 6.5% coupon rate. The proceeds from the placement will be used for the early repayment of existing liabilities. The bond is certified as a ‘Green Bond’ by the Climate Bonds Initiative.

The White & Case team which advised on the transaction was led by partner Rebecca Emory (Frankfurt) and included partners Gernot Wagner, Karsten Woeckener, Vanessa Schuermann, Lutz Kraemer (all Frankfurt), Karl-Jörg Xylander (Berlin) and Bodo Bender (Frankfurt), local partners Sebastian Schrag, Florian Ziegler, Cristina Freudenberger and Thilo Diehl (all Frankfurt), counsel Alexander Born (Frankfurt) and associates Mansha Malhotra, Eva Maryskova, Irina Schultheiss, Justin Tevelein, Kirsten Donner and Tobias Gans (all Frankfurt). Lawyers from White & Case offices in the UK, Italy, France, Sweden, Singapore, Spain, Mexico, South Africa, Turkey and the US also advised.

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Taisa is a partner in the Firm's Capital Markets practice in New York. Her practice focuses on cross-border securities offerings, cross-border bank finance and M&A, restructurings and general securities law matters. Taisa has significant experience representing both financial institutions and issuers particularly in the Latin American and European capital markets. She also has in-depth knowledge of Tier 1 and Tier 2 capital securities across jurisdictions.

Industry press consistently recognizes Taisa as a leading lawyer for capital markets involving Latin American issuers. She is ranked for Banking & Finance and Capital Markets by Chambers Latin America and as a Foreign Expert in Chambers USA.

Global law firm White & Case LLP has expanded its Global Capital Markets Practice with the addition of Taisa Markus as a partner in the Firm's New York office.

"Taisa is well known in the Latin American capital markets community and has long-standing relationships with a broad range of banks and corporates in various countries, including in Peru and Argentina," said Stuart Matty, Head of White & Case’s Global Capital Markets Practice. "She also has extensive experience and is widely recognized in the Mexican market for her capital markets and finance work."

John Vetterli, White & Case's Regional Section Head, Americas Capital Markets, said: "Regulatory changes and economic reforms in Latin America have attracted investors who have ample capital and an appetite to invest in some of the world’s leading emerging markets. The addition of Taisa reinforces our commitment to address the needs of our clients who are active in the region, as well as the outbound business needs of our Latin American corporate clients."

Markus, formerly a partner at Paul Hastings, handles securities offerings across jurisdictions, cross-border bank finance and M&A, and general securities law matters. She represents both financial institutions and issuers not only in the Latin American capital markets but the European capital markets as well.

Markus is the fourth partner since April 2017 that White & Case has added to its Global Capital Markets Practice, which advises banks, sponsors and corporations on capital raising, cross-border and structured financings and fund formation.

The Firm has offices in Mexico City and São Paulo that work seamlessly with the rest of our network in New York, Miami, Washington, DC, Madrid and London, as well as a number of our other offices around the world, in supporting and representing clients in Latin America.

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