Cameroon seals landmark road deal with Italian SMEs

The Ministry of Economy of Cameroon closed a €94.8 million SACE-backed loan to finance the rehabilitation and modernisation of a main road project in November. Cameroonian deal flow is sparse given its debt burdens and limited borrowing allowance under IMF rules, and this deal marks the second ECA-covered loan to close in the Central African country this year.

The scheme involves expanding approximately 70km of road between Olounou and Oveng over 36 months – which is part of the strategic route between Cameroon’s capital Yaounde and Gabon. Upgrades to the existing dirt road will increase trade connections between Cameroon and Gabon and other southern countries, as well as being a critical transportation path for the population. The road will be constructed in 10km sections and will only commence once all environmental and social aspects have been cleared. 

A joint venture between two small Italian contractors – SEAS Srl and Cosedil Spa – are the exporters on the deal. Both have completed similar infra projects in Italy and Africa in recent years which helped them pass the due diligence of the government and lenders, as they have the capacity and track record on such deals.

Given a large EPC was not used, the synergy of SMEs helped mitigate the performance risk of using one smaller exporter – providing comfort for banks (as did the fact the road would be developed in phases). Small exporters also arguably made shouldering the lengthy deal timeline easier as a large EPC would not have waited so long for a loan of this size. 

And the deal gestation period was lengthy – SEAS started working with the Cameroonian government nearly eight years ago. From the lack of deal precedents and the forensic scrutiny around loan approval processes to SEAS having to pass extensive due diligence on various technical, commercial, financial and environmental and social aspects (E/S), there were significant challenges. 

These hurdles were amplified by the fact the government were heavily involved at each step of the transaction. Coupled with the usual environmental and local content issues road deals face in Africa, there was much to overcome. And the list of priorities has not ended. There are still surveys being conducted for instance – environmental aspects as well as social and land acquisition. 

Financing details

The facility was arranged by sole lender Deutsche Bank and is backed by the Italian ECA, SACE with the involvement of various Italian suppliers. SIMEST provides a stabilisation of the interest rate of the financing which allowed the borrower to pay a subsidised fixed rate. The buyer was the Ministry of Public Works in Cameroon (MINIEPAT).

Bluebird Finance & Projects is the EPC’s financial advisor, and has been working with the JV on arranging the financing package for the deal from day one. Bluebird has successfully closed in the past eight years financing packages for large infrastructure projects in Africa at a total of €2 billion, with various ECAs and banks.

Ram Shalita, CEO & Partner at Bluebird Finance & Projects, tells TXF: “This deal is the essence of export finance – a project which will improve the lives of millions, and which will fix a huge unreasonable gap – a critical national route which has been so far, for many years, a dirt road.”

“The achieved objective represents a significant entrepreneurial success for the entire Italian SME sector," said Roberto Mariucci, a manager at SEAS. "This result underscores the importance of presenting not only a technical offer but also a financial proposal; in this context, the notable synergy between public and private entities, including SACE, SIMEST, Deutsche Bank, and the companies themselves, is emphasised. In summary, the Italian System operated impeccably."

The financing has been aligned (and will be monitored) according to the strictest E/S guidelines as per IFC PS. The lenders’ IESC is IBIS. Ramboll assists the JV in the E/S surveys and preparation work. Construction shall commence only once clearing all E/S aspects as per IFC PS.

The TXF Perspective

ECA-backed deals are few and far between in Cameroon. Not least because of the raft of difficulties that need to be overcome to close deals in the country. After all, it is not the Ivory Coast were deals move fast.

There has been one other ECA deal in Cameroon this year – in May, Inter-Council Special Support Fund of Cameroon signed a $165 million loan provided by US Exim to fund the purchase of civil engineering equipment.

The fact the SME angle was key to getting the upgraded road deal across the financial line was a landmark feature. SMEs are the engine behind most economies and will be key to plugging the infrastructure gap in Africa, which is estimated at $130 to $170 billion in annual financing needs. Far too often SME exporters lose out on deals to large EPCs which benefit from their established relationships with borrowers and the related efficiencies. 

There were some strong EPCs in the selective bidding process. EPCs jump on projects in African with stiff competition, especially larger players. But rarely do SME exporters win strategic deals and get them over the line. This deal is unique and has provided a financial template to proliferate future such deals in Cameroon.

Phase 2 of an additional 50km is planned to be executed in the near future, to complete the connection of Oveng to the Gabonese border. At least now the government of Cameroon is aware SME exporters can have the capacity to bear long years of project development before financial close.