General structuring of financing

Choice of law

What territory’s law typically governs the transaction agreements? Will courts in your jurisdiction recognise a choice of foreign law or a judgment from a foreign jurisdiction?

Transaction agreements in Nigeria are typically governed by Nigerian law or English law, although the parties may, by mutual consent, agree to other foreign laws. Foreign counterparties often propose other foreign laws, but we usually see the parties settle for English law as a compromise.

Nigerian courts recognise and give effect to the parties’ choice of foreign law unless there is justification for a Nigerian court not to give effect to that foreign law. As a general rule, the intention of the parties on the governing law of a contract determines the proper law of the contract, but for such choice of law to be effective, it must be real, genuine, bona fide, legal and reasonable. That law must have some relationship to, and must also be connected with, the realities of the contract considered as a whole.

Judgments from foreign jurisdictions are generally enforceable in Nigeria, subject to complying with the requirements of the law on enforcement of foreign judgments. There are two statutory regimes for the enforcement of foreign judgments in Nigeria:

  • the Reciprocal Enforcement of Judgment Ordinance 1958, Cap 175, Laws of the Federation of Nigeria and Lagos; and
  • the Foreign Judgments (Reciprocal Enforcement) Act 2004, Cap F35, Laws of the Federation of Nigeria.

Restrictions on cross-border acquisitions and lending

Does the legal and regulatory regime in your jurisdiction restrict acquisitions by foreign entities? Are there any restrictions on cross-border lending?

Except for businesses on the negative list (such as production of firearms, ammunition, production of, and dealing in, narcotic drugs and psychotropic substances and production of military and paramilitary wears) and coastal and inland shipping, the legal and regulatory regime in Nigeria does not restrict acquisitions by foreign entities.

In fact, Nigeria has put in place several mechanisms to ensure the ease of doing business in Nigeria and to encourage foreign investment inflow to Nigeria. While ownership by Nigerians is encouraged in certain sectors, such as oil and gas, with applicable incentives, acquisition by foreign entities in those sectors is not restricted. There are no regulatory restrictions on cross-border lending in Nigeria. In most cases, the Nigerian entities act as borrowers and the foreign entities as lenders.

Where the borrower wishes to access the official foreign exchange market to procure foreign exchange for payment of interest and principal, the foreign lender is required to obtain a certificate of capital importation (CCI) at the time the loan is being in-flowed into Nigeria. However, where a CCI is not obtained, the borrower may have to access the unofficial market to procure foreign exchange. Therefore, the absence of CCI does not restrict repayment of a cross-border loan.

Types of debt

What are the typical debt components of acquisition financing in your jurisdiction? Does acquisition financing typically include subordinated debt or just senior debt?

Depending on the size of the acquisition financing, in addition to taking security on the asset to be acquired, Nigerian banks typically require borrowers to contribute some form of ‘equity’ in support of the total sum required for the relevant acquisition. Therefore, for large acquisition financings, it would be rare to have that financing only provided by senior debt. The debt component is likely to be a mix of senior debt and subordinated debt (where the sponsors provide shareholder loans in addition to direct equity investment). On the other hand, with smaller financing transactions, the banks may be able to get comfortable with only taking security on the relevant asset to be acquired with little or no equity being provided by the borrower.

Certain funds

Are there rules requiring certainty of financing for acquisitions of public companies? Have ‘certain funds’ provisions become market practice in other transactions where not required?

In a takeover transaction, where the consideration for the shares will be cash, the law requires the offeror to make adequate arrangements to ensure that funds are available to make the required payment for those shares.

Furthermore, in an acquisition transaction requiring the approval of the Nigerian Securities and Exchange Commission (SEC), the acquirer must show the SEC, by way of documentary evidence, the source of funds to finance the acquisition.

In other instances, the acquirer only undertakes to the target that it has the funds to fulfil its payment obligations in the agreement. ‘Certain funds’ provisions are not commonplace in Nigeria.

Restrictions on use of proceeds

Are there any restrictions on the borrower’s use of proceeds from loans or debt securities?

Yes. There are restrictions in relation to a borrower’s use of proceeds from debt securities. For example, a company cannot use the proceeds from loans or debt securities to pay dividends to its shareholders. Furthermore, an issuer of debt securities, where the issuance requires the approval of the SEC, is prohibited from using the proceeds of the issue for purposes other than those stated in the prospectus or offer document without the approval of the SEC.

Licensing requirements for financing


What kind of indemnities would customarily be provided by the borrower to lenders in connection with a financing?

A borrower generally provides standard indemnities, similar to those contained in the Loan Market Association’s (LMA) template loan facility agreements. These include, but are not limited to, indemnities for:

  • costs, losses and expenses incurred in connection with the preparation, negotiation and completion of the facility;
  • costs incurred in defending or settling legal claims (excluding where the claim is in connection with the lender’s acts of gross negligence or wilful default);
  • tax liabilities incurred by virtue of the lender’s participation in the borrowing;
  • costs incurred with currency fluctuation risks; and
  • costs of creating and perfecting security.