Cleary and DLA act on Sichuan Hongda’s $3bn African energy deal

Cleary Gottlieb Steen & Hamilton and DLA Piper took lead roles on Chinese company Sichuan Hongda Group’s $3bn (£1.95bn) investment in Tanzania.

China’s Sichuan Hongda Group, represented by US firm Cleary, has signed an agreement to establish a joint venture with Tanzania’s National Development Corporation (NDC). The joint venture, named Tanzania China International Mineral Resources (TCMR), will develop an integrated coal mine and power plant project and an integrated iron ore mine and steel mill project in Southern Tanzania. The two projects, with a total investment of up to $3bn, will represent the single largest investment venture in East Africa to date.  

The Cleary team is headed by Beijing office director Li Li and Hong Kong partner Mike Preston. Sichuan Hongda has engaged Tanzanian firm K&M Advocates as its local counsel.

DLA Piper with its Tanzanian group firm IMMMA Advocates represented the NDC. DLA Piper’s team on the transaction was led by London-based partner Charles Morrison.

This investment has attracted major attention from the president, the government and the residents of Tanzania. “There are many mining projects in Tanzania. This project is different, not only because it’s the largest single investment in East Africa, but also because it’ll have a major impact on the Tanzania economy. This is an important milestone in Tanzania’s 2025 vision for the development of its economy,” said Li.

International firms like Cleary expect Chinese companies’ investment into Africa to continue gaining momentum. “Outbound investments by Chinese companies have enjoyed a sustained period of exciting growth, with Africa a principal beneficiary of this investment,” said Preston. “Successful representation of clients in this field requires not just a deep understanding of the Chinese market, but also of the business, cultural and legal environment in target African countries.”

Cleary’s Preston noted that there is not a field for the “cookie-cutter” one-size-fits-all approach to deal-making, adding that legal advisors must understand the local legal, political and cultural sensitivities that will dictate how a deal can be documented and how an investment can be protected.   

DLA Piper’s Morrison agrees on the complexity of this type of transaction.

“Transactions of this nature always involve a balance of competing factors: the need to secure sufficient investment and expertise to establish a viable project; investors seeking commercial returns; while also ensuring the project fairly shares its benefits with the host country and satisfies wider development goals,” he said. “The NDC achieved a notable success in the structuring of its joint venture arrangements to form a mutually beneficial partnership with Sichuan Hongda, beyond the typical concession type arrangements that are common with private investment in natural resources in Africa.”

Under the agreement, Sichuan Hongda will hold an 80 per cent interest in the joint venture company with NDC hold the remaining 20 per cent. Completion of the transaction is subject to various conditions, including approvals from the PRC and Tanzanian governments.