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New legislation in the banking and power industries and high levels of foreign investment is keeping Nigerian lawyers busy, says Dale McEwan
A year ago, the Central Bank of Nigeria (CBN) issued a directive repealing the concept of universal banking and limiting the country’s banks to “core” activities. The regulation has led to a tidal wave of regulatory and restructuring work for the country’s lawyers.
“The directive has caused a flurry of activity in the banking sector,” says Templars managing partner Oghogho Akpata.
Under the directive, banks are granted core banking licences instead of universal licences. Those currently holding universal licences have the option to either divest or spin off their non-banking operations.
Akpata explains that his firm has been working for the First City Monument Bank to ring-fence commercial banking assets and liabilities worth over $5bn (£3.2bn) from riskier non-banking businesses and activities in compliance with the CBN licensing regulations. In addition, Templars has been advising Guaranty Trust Bank in connection with the divestment of its interests in non-core banking businesses.
“While some banks have fully restructured, others have decided to divest,” says Banwo & Ighodalo partner Ayo Owoigbe. “It’s interesting because issues are being raised. In these kinds of scenarios people are worried about new owners and continuity.”
Banks to have carried out corporate restructurings include some of Nigeria’s biggest operators: First Bank of Nigeria, Guaranty Trust Bank and Zenith Bank. M&A activity has also been prevalent as a result of CBN’s regulatory work.
Following a deadline put in place by CBN, firms have seen a high demand for advice on the recapitalisation process of banks considered by the CBN to be in peril.
Banwo & Ighodalo has been advising First City Monument Bank in connection with its acquisition of, and subsequent merger with, FinBank. The firm has also been advising Sterling Bank in connection with its merger with Equitorial Trust Bank. Both FinBank and Equitorial Trust Bank were identified by the CBN as being in danger.
The firm has also conducted several due diligence reviews on six of the nine banks determined by the CBN to be in peril.
Restructuring and advisory work is not limited to the banking sector, however. The introduction of the Content Development Act last year has been another source of work for lawyers.
In a nutshell, the legislation is an attempt to ensure that Nigeria’s oil and gas industry provides maximum benefits for Nigerians. For example, Nigerian independent operators should be given first consideration in the award of oil blocks, oil field licences, oil lifting licences and all projects for which contracts are to be awarded. The act covers issues ranging from the bidding process for contracts, employment, the importation of welded products to financial services.
It is mandatory for operators, contractors and other entities engaged in the country’s oil and gas industry to retain the services of only Nigerian legal practitioners or a firm of Nigerian legal practitioners whose office is located in Nigeria. The act also provides a 50 per cent threshold of Nigerian content for legal services relating to project management and consulting services.
“It was a radical change,” says Owoigbe.
The law has had an impact on a number of recent transactions, according to Owoigbe, including African Development Partners I’s equity investment in, and debt financing of, Nigerian oil services company AOS Orwell. The firm worked alongside Norton Rose to review, negotiate and finalise all the transaction documents.
Rules of engagement
Nigerian lawyers are also gearing up for the possible enactment of the long-delayed Petroleum Industry Bill. Essentially, the bill is an attempt to establish the legal and regulatory framework, institutions and authorities for the Nigerian petroleum industry.
“We’ve been busy advising clients on what the changes would mean for them,” says Akpata. “If that law is eventually enacted we see ourselves being quite busy. We need to get ready for these changes.”
In a legal first, Nigeria made its debut on the London Stock Exchange earlier this year with an international sovereign bond issue. Banwo & Ighodalo advised on the local issues.
“This was a landmark transaction and everyone learned a lot,” says Owoigbe. “I’m very proud of that. There was a rigorous and competitive bidding process.”
The $500m 10-year bond issue attracted investors from 18 countries across Europe, Asia, Africa and the US. At the time, the bond was said to be two-and-a-half times oversubscribed.
Inwards and upwards
In terms of inbound economic interest, things are looking good for Nigeria.
“We’re noticing a lot of new companies making enquiries about coming to Nigeria,” says Osayaba Giwa-Osagie, founding partner of Giwa-Osagie & Company. “In Lagos in the next two years there’ll be a minimum of 10 new hotels. That sector is vibrant. Also, the number of foreign airlines looking to work in Nigeria has increased. We’re getting more enquiries from airlines that want to come in. The government is keen to make Lagos a hub for West Africa. It should be the natural choice.”
Continental Airlines is due to begin flights to Lagos in November this year, while United Airlines started its activities at the end of last year. This brings to three the number of US airlines operating flights to Nigeria.
Heineken International has also expressed interest in Nigeria, with Banwo & Ighodalo advising on its multibillion-naira acquisition of five beer- and malt-brewing companies in the country earlier this year.
Despite the vast economic growth across Africa, lawyers and corporations are still wary of the corruption that plagues the continent. Nigeria is no exception, with the country ranking 134th of the 178 countries on Transparency International’s Corruption Perceptions Index in 2010. The introduction of the UK Bribery Act has brought about an even stronger focus on tackling corruption.
“I think [the act] reinforces what needs to be done,” says Giwa-Osagie. “The government is sending a clear message that it won’t tolerate corruption. What’s happening here is that the government isn’t going to handle corruption cases with kid gloves.”
Templars’ Akpata says many international companies are in the process of restructuring their activities to ensure strict compliance with the new legislation. The firm has set up a compliance group to enable it to provide bespoke advice to its clients. Before the advent of the act the firm’s compliance advisory practice was part of its general corporate and commercial department.
“We found there was a lot of work coming into this department,” says Akpata. “We now find that our clients don’t want to do anything without compliance advice.”
In the legal market firms are now witnessing more Nigerian lawyers returning to the country after having worked in outfits in other parts of the world.
“While this may not be unrelated to the global economic meltdown, it has had a positive impact on the Nigerian legal landscape as it has generated human resource with international expertise and exposure,” says Akpata.
Templars recently recruited Nigerian lawyers who had previously worked at Clifford Chance, Shearman & Sterling and White & Case.
“In our office we see applications every week from between 10 and 15 lawyers trained in the UK or US thinking of coming home,” says Blackfriars partner Ikechi Mgbeoji.
He adds that the lawyers are usually from mid-sized firms and may see a return from the diaspora as a way of increasing their opportunities. According to Mgbeoji, these lawyers would be ideal to set the wheels in motion for alliances between local and international firms, perhaps as a way to eradicate gaps in the quality of legal services.
“The practice of law hasn’t really improved in terms of quality,” says Mgbeoji. “We don’t have a huge number of Nigerian lawyers who understand patent law, for example.
he limitation of the skill-set is beginning to show. There’s some investment and banking work where we don’t have a big pool. As soon as this economic situation is over local law firms should try to establish some kind of relationship with international firms and displace the old regime whereby law firms are family-owned. I think we’ll see the American or British law firm model.
“There’ll be some kind of reverse migration,” he adds. “Lawyers may realise they could add more value if they come back to Nigeria with their skills and support from international law firms. That degree of connection between the foreign firms and local subsidiaries is going to emerge.”
Akpata echoes these sentiments.
“It wouldn’t be a surprise to hear about some kind of alliance coming up,” he says. “[The international firms] are becoming comfortable with Nigerian deals.”
Although Nigeria presents challenges, foreign firms speak highly of the country’s potential.
“It would be unusual to see a client do a major African deal where there wasn’t a Nigerian component,” says Edward Nathan Sonnenbergs executive Scott Nelson. “You can imagine what that country could do if the infrastructure was in place to allow it to blossom - it’s quite scary to consider the level of growth. It’s an important country.”