1. Private Bank & Financing in Africa
24 June 2008
24 June 2008
Henry K. Hall, CFA
Managing Director
GEM Equity Derivative Sales, Structuring and Financing

2. Equity Linked Financing

3. Equity Linked Financing
Basic Concept
Collateral Value
Liquid Shares: possible to use market trading value
Illiquid shares: need to rely on a new valuation based on trading levels of comparable companies. Market price used as reference only. This method has been recently applied by Merrill Lynch share financings in the CIS1 region
Margining
If the value of the portfolio decreases below a pre-determined value, the borrower would be expected to post margin payments (cash and/or acceptable securities).
In special circumstances the bank may allow for the first call to be made in shares, and then switch to cash
The deadline for posting cash of share collateral in most cases shall be 1 or 2 days
If the secured shares are not a reliable margining benchmark, a proxy index or basket of shares can be used
Alternatively - margining is based on audited accounts as a function of EBITDA, Sales or other financial indication multiple
If the share value drops substantially, then the bank has the right to accelerate the loan
Legal Structure
The most simple version is the pledge of the local shares by the owner to the lender, but this works if the legal system in the jurisdiction if robust enough to allow easy and immediate enforcement of the pledge
To ease the legal issues of the pledge, investors prefer an outright sale and repurchase of shares by the pledgor to the lender (assurances can be given for dividend pass through and proxy voting) in a Repo (Sale and Repurchase) transaction.
Alternatively, if the holding company is in an offshore jurisdiction with English or similar law (e.g. Cyprus, BVI), a combination of local law pledge onshore and English law pledge of the shares in holding company can be used.
The due diligence process shall specifically focus on the shareholder agreements and any side agreements that might contain pre-emptive shareholders rights.
Note: 1 CIS region means Commonwealth of Independent States and include former USSR countries

4. Equity Linked Financing
Financing Structure
Financing is provided to the holding company (or SPV), which owns or intends to own (in the case of acquisition financing) a portfolio of shares in an operating company(ies)
In general such structures centre around the shareholder’s aim to obtain financing for developing new parts of the portfolio by unlocking value of the more developed parts of the portfolio
Furthermore this type of loan does not interfere with the business of the operating asset itself
We assume that the financing is provided at the holding company (HoldCo) level without recourse to the operating company (OpCo).
This means that there is usually no operating company guarantee and the shares are the only security available to the lenders
These structures generally require share collateral and participation in equity upside in addition to usual credit terms
$ Loan
Hold Co
[]% Ownership
[]% Share Pledge
Op. Co.
Interest,
Principal
& Equity Upside
Sub 2
Sub 1
Sub 3 $
Project or
Acquisition
Potential Share Pledge

5. Equity Linked Financing
Repayment of Loan
Deal Parameters
If the shares are not liquid
The loan needs higher collateral coverage: ([3]x-[4]x of the loan amount)
A specific exit strategy is evaluated
Dividends commitment
Expected liquidity event, such as the sale of the investment project or an acquired asset
Expected IPO of the operating company / assets
Sale for a strategic buyer
Block sale of some assets if there’s a strategic buyer available
Put option from a strategic buyer or an investor
If the shares are liquid, the sale and repurchase of shares in the open market may be possible
Loan size equivalent to approximately [10] business days of average trading volume.
The trading volume would normally include the aggregate volume of the local currency markets and the Global and/or American Depositary Receipts if applicable.
Leverage Restrictions
Financing amount may be influenced by the amount of debt at the operating company level
The leverage of the operating company also has effect on the valuation of the shares
After the financing is in place, certain covenants will be put on the loan
The Bank will also look at the total leverage (at the holding and operating company)
Upside
If the borrower is not prepared to pay a higher spread, one way to achieve an equitable return for investors would be to give them some equity upside, for example, a call option on a portion of the shares in the secured portfolio
This component becomes essential if the financing is extended for more than year

6. KES Senior Unsecured Loan

7. KES Senior Unsecured Loan
Structure and Benefits
Transaction Description
Client receives a loan of KES [6.7] billion for [3] years from Merrill Lynch
Client pays [16.00]% per annum, calculated on the KES Loan Amount paid in USD using the then spot FX rate
Client redeems the loan at the then equivalent USD Loan Amount
[16.00]% x KES Loan Amount
paid in USD at the
then KES/USD rate
Client
Merrill Lynch
[6.7] billion KES Loan
Salient Features
Client borrows in local currency (KES)
Long Term Funding – 3 to 5 year maturities available from Merrill Lynch
Attractive rate and size
Financing from an International Institution

8. KES Senior Unsecured Loan
Summary of Terms

9. Dual Currency KES/USD Senior Unsecured Loan

10. Redemption KES [6.7] billion
Dual Currency (KES/USD) Senior Unsecured Loan
Structure and Benefits
Transaction Description
Client receives a loan of KES [6.7] billion for 3 years
Client pays
[14.00]% per annum, calculated on the KES Loan Amount paid in USD using the then FX rate; or
USD Libor +[2.00%] on the USD Loan Amount, at Merrill Lynch’s option
Client redeems the loan at
the then equivalent USD Loan Amount in KES; or
the USD Loan Amount; at Merrill Lynch’s option
[14.00]% x KES Loan Amount
paid in USD OR
(LIBOR +[2.00%] x
USD Notional Amount
Client
Merrill Lynch
[6.7] billion KES Loan
Redemption KES [6.7] billion OR
USD 100 million

11. Dual Currency (KES /USD) Senior Unsecured Loan
Structure and Benefits
Salient Features
Client borrows in local currency (KES)
Lower cost of financing due to dual currency optionality given to Merrill Lynch
ML can choose one of the two coupon options on the Interest Payment Date, therefore making the whole loan cheaper for the borrower
This loan has a tighter margin than either borrowing in just USD or borrowing in just KES
If the KES devalues strongly, loan repayments nominated by Merrill Lynch are likely to be in USD. If this is the case, it is more cost efficient than a straight USD Loan as the interest payments under the proposed structure are lower than interest payments that would be due under a straight USD Loan
No risk of mismatch between Client’s assets and liabilities, as Client likely has revenues both in USD and in KES. Client is therefore monetising the optionality to use KES or USD balances that are prevalent on their balance sheet by lowering their cost of funding
Financing from an International Institution

12. KES Dual Currency Senior Unsecured Loan
Summary of Terms

13. Convertible Loan Financings

14. Convertible Financing
Basic Structure
Convertible loans, which convert to a fixed number of shares at maturity, at the option of the lender
A typical maturity would be for 3-5 years
By providing a call option on the shares of the company to the Lender through a convertible structure, the funding cost is more attractive than senior unsecured funding levels
At maturity the borrower will have the obligation to either repay the Loan to the Lenders in Cash or Shares
The strike price of the convertible is generally set above current market level which allows the Borrower to sell his stock in the future at higher prices, should the convertibility option at maturity be exercised by the Lender
Lenders generally require that the Borrower facilitates the borrowing of the shares from the Company to the Lenders
The structure also generally provides for protection to the Lenders against any change in dividend policies and anti-dilution and takeover protection
In come structures investors may put the convertible bond back to the Issuer prior to maturity at a predefined Put Price

15. Convertible Financing
Key Indicative Deal Terms
Issuer
A Kenyan registered commercial banking company, or a Corporate
Issue Size
US$ [100],000,000 preferred stock/convertible loan (the “Loan")
Maturity
2012 (5 year tenor)
Security
Shares pledged of the issued share capital of Issuer
Selling Restrictions
None. Private transaction between Kenyan bank or a Corporate and Merrill Lynch
Coupon
[●]% paid semi annually
Conversion Rights
Lenders can choose to be repaid by receiving shares at a conversion price equal to [110]% of current share price
Early Redemption
None
Put Option
Puttable at year [3] at the Put Price (to be determined) by the Lenders
Currency
US Dollars
Governing Law
English

16. Benefits Cheaper cost of financing, than senior unsecured loan
Sale of company stock at higher prices that the current stock price
Treatment as senior unsecured debt
Additional leverage for existing shareholders
Compared to an equity issuance, the dilution effect is deferred until maturity of the Financing

17. Typical Deal Timeline

18. Typical Deal Timeline
Indicative Timetable: 6 – 8 weeks

19. Trade Ideas and Equity Secured Financing Case Studies

20. Offshore Holding Company Onshore Operating Company
Financing Trade Ideas and Equity Secured Financing Case Studies
Case Study
Majority owner of a private metal sector company seeks 1 year bridge financing to purchase shares in a listed company
Other commitments require funding solution using only his private equity stake in company
1 year financing is arranged using control stake of private equity worth 4 times the value of the loan
Legal structure and multiple layers of pledge – onshore and offshore ensure full creditor access to collateral
Loan
Interest + Principal
Use of Proceeds
Blocking Share of OpCo Pledged & Portion of HoldCo Pledged
Target Company
Clean SPV
Offshore Holding Company
Payback
Offshore
Onshore
Onshore Operating Company
Ownership

21. Iron Ore Mining Rights Financing
Financing Trade Ideas and Equity Secured Financing Case Studies
Iron Ore Mining Rights Financing
ML’s structuring expertise and openness to non-standard risks can lead to attractive deals for investors
Example:
Majority owner of speculative natural resource company sought financing to buyout minority shareholders
Company’s sole assets are iron ore mining rights premium
Exit from the loan through international auction of mining rights by Merrill Lynch
Merrill Lynch receives interest payment + equity upside determined at the time of the auction
Selling Shareholder 1
Cash paid directly by ML to shareholder
SPV purchases 30% stake
30% Shareholding
Company
(Limited Company)
Before Funding:
50% shareholding
After Funding:
100% shareholding
Borrower
(Panamian SPV)
Loan
Loan
Pledge of 100% of Company shares
20% Shareholding
SPV purchases 20% stake
Selling Shareholder 2
Cash paid directly by ML to shareholder

22. Private Equity / Mezzanine Finance - Iron Ore Mining Rights Financing
Financing Trade Ideas and Equity Secured Financing Case Studies
Private Equity / Mezzanine Finance - Iron Ore Mining Rights Financing
Financing for LBO in attractive agro-business sector
The exit is in three years via an IPO or trade sale
Merrill Lynch arranging:
USD30m Private Equity; and USD70m Mezzanine Debt financing in partnership with the management team
2-3 year trade with high risk/high reward characteristics
Equity target ROE is >30%
$70 MM
Mezzanine
Financing
+ Principal repayment
+ Asset security
Management
to augment or replace existing team with experienced individuals
Debt
Merrill Lynch
- Agent
And/or Partial investor
Agribusiness
Company
Equity
$30m Equity
investment

23. Case Study: Oceanic Bank Bilateral Loan

24. Oceanic Bank – US$175m Bilateral Loan
Transaction Summary
Transaction Overview
Summary Terms & Conditions
In May 2007, Merrill Lynch closed a US$175m bi-lateral financing with Oceanic Bank International Plc
Financing in both Nigerian Naira (NGN) and US dollars
First ever multi currency loan in Sub Saharan Africa
Longest maturity bank financing to date from Nigeria
The orderbook encompassed hedge funds, banks and asset managers from 6 countries
Geographical Distribution of Allocations
Investor Type Distribution of Allocations
Orders were received from the United States, UK, Asia, and Scandinavia

25. Interest & Principal Payments
Oceanic Bank – US$175m Bilateral Loan
Transaction Structure
Nigeria
Counterparties
Offshore
Interest & Principal Payments
Oceanic
Bank
Merrill Lynch
International
Hedge Funds /
Asset Managers
Risk Syndication
Loan Agreement
Dual Currency Loan

26. Oceanic Bank – US$175mn Bilateral Dual Currency Loan
Press Coverage
May 2007

27. Merrill Lynch - Africa Credentials
March 2007
$175,000,000
First Bank of Nigeria
9.750% LT2 10NC5
March 2007
$480,000,000
Federal Republic of Nigeria
Final London Club Debt Repayment
2005
US$1,553 million
Multi-Tranche Oil
Receivables Securitisation
EGPC
2004
€450 million
Due April 2011
Joint Lead Manger
Republic of Tunisia
2004
Advisor on Securitisation
of Future Flows
National Bank of Egypt
2004
¥15 billion
First Ever 4.3% Global Samurai Bond Due 2030 Sole Bookrunner
Central Bank of Tunisia
2003
€330 million
Due Feb 2013
Joint Lead Manger
Republic of Tunisia
2003
€400 million
Due July 2008
Joint Lead Manager
Kingdom of Morocco
2002
US$650 million
7.325% Global Bond Due 2012 Lead Manager
Central Bank of Tunisia
2001
US$1.5 billion
Inaugural Bond Joint Lead Manager
Government of Egypt
2001
¥35 billion
2.27% Global Samurai Bond Due 2006 Sole Bookrunner
Central Bank of Tunisia
2001
¥20 billion
4.2% Global Samurai Bond
Due 2031 Sole Bookrunner
Central Bank of Tunisia
2001
€500 million
7.000% due April 2008
Joint Lead Manager
Republic of South Africa
2000
¥35 billion
3.3% Global Samurai Bond Due 2010 Sole Bookrunner
Central Bank of Tunisia

28. Discussion Parameters
The preceding information is intended to you with general market views and information, and is not based on the individualized characteristics of any particular plan(s). It is not intended for further dissemination in its present form and may not be disseminated to other parties. It is for your private information and is for discussion purposes only. The preceding information is intended solely to provide you with a general overview on risk management products.
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29. Disclaimer
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