What is Project Finance?
Project Finance is a structured financing technique in which the cash flows generated by the project itself are the main source of debt repayment, and the project's assets are the main collateral. Unlike corporate financing, Project Finance isolates the risk in a dedicated entity and assesses the intrinsic viability of the project.
This approach, dominant in the financing of large infrastructure worldwide (power plants, toll motorways, ports, pipelines), is developing gradually in the OHADA zone, driven by massive needs in energy, transport and drinking water.
The OHADA legal framework
The OHADA zone, which brings together 17 African states including Cameroon, Gabon, Senegal and Côte d'Ivoire, offers a harmonised legal framework that makes structuring complex financings easier. The Uniform Act on Securities (AUS), revised in 2010, provides modern instruments: security trust (fiducie-sûreté), pledge of a bank account, rechargeable mortgage, and assignment of professional receivables.
A typical financing structure
Debt tranches and equity
Typical Project Finance structures in the OHADA zone involve several levels of financing. Senior debt (60-70% of total financing) is provided by local commercial banks and development institutions (AFD, PROPARCO, IFC, BDEAC). Mezzanine debt (10-15%) can be structured as subordinated loans. Equity (20-30%) is provided by the project sponsors.
The cash-flow waterfall
The waterfall defines the order of priority in allocating the flows generated by the project. It is set contractually at financial close and follows this order: operating expenses (OPEX), senior debt service, maintenance reserves, mezzanine debt service, regulatory reserves, then distribution to shareholders. No distribution is allowed until the minimum DSCR (generally 1.20x to 1.30x) is met.
Managing risks specific to the zone
Risks specific to the zone must be carefully managed and allocated between the parties. Political risk can be managed through MIGA or COFACE insurance mechanisms, or AFD partial risk guarantees. Currency risk is hedged with FX swaps or contractual indexation clauses. Mboa Make works upstream of the financial structuring to prepare sponsors to present their project to international lenders.
