Finance

March 2016

Briefing

Foreign loans
and the process
ofobtaining a debt
record number from
Bank of Tanzania
As an international law firm operating in Tanzania,
we are often asked to provide advice and work on
transactions involving international lenders providing
debt facilities to corporate borrowers in Tanzania.
An issue which comes up regularly relates to the
issuance of a debt record number (DRN) by the
central bank, Bank of Tanzania (BoT). In this months
finance update we look at what the registration
process entails from a transactional perspective in
order to clarify some of the confusion surrounding
this issue.
Background for registration with BoT
Amongst Tanzanian corporates, raising debt finance through traditional bank
lending on a bilateral or syndicated basis for business expansion or to meet
working capital requirements is on the rise. We are seeing an increasing trend
of borrowers approaching international banks and other offshore financial
institutions, rather than domestic lenders, to meet their funding requirements.
The two main reasons for this are (i) pricing and (ii) lending limits - the domestic
loan market is more expensive and still developing its appetite for leverage.
Primarily, BoT has been entrusted with the responsibility of monitoring the
issuance of foreign debt into Tanzania. The policy driver behind this role stems
from the Governments ambition to ensure that the economy has the capacity
to honour its debt obligations. The message, therefore, is that the Government
of Tanzania is willing to take steps forward to liberalise the Tanzanian economy
with a view to stimulating growth in the private sector by allowing corporates
to borrow from international banks and investors as long as the underlying
transactions are closely monitored. It is worth mentioning that the Government
has openly declared that any information collected in respect of foreign debt
raised by the private sector is strictly used for statistical and analytical purposes
and can only be published in aggregate form in order to preserve the privacy of
individual borrowers.

What does a borrower and its commercial bank need to do to ensure

the DRN is issued in a timely manner?
As highlighted above, it is important that a potential borrower begins the process
of registering the loan with BoT as early as possible in order to avoid any potential
pitfalls or delays with funding. With this in mind, it is prudent for a borrower
to get in touch with their respective commercial banks relationship director to
inform them of the terms of the debt package being offered by the international
lender. This in turn allows the relationship director to begin discussions with
their counterpart at BoT.
Whilst the commercial obligation rests with a borrower to ensure a DRN is
obtained, the obligation to notify BoT sits with the borrowers commercial bank.
The primary responsibility for the commercial bank is to manage the registration
process and liaise with BoT representatives. Most importantly, this will entail
providing BoT with a copy of a fully executed and dated loan agreement.
Anoriginal of the loan agreement is not necessary. The loan agreement
shouldcontain the following key information:
name of the lender and borrower;
contact details such as the postal address, fax number, telephone number,
email address as well as the physical address of both the lender and the
borrower;
date of the loan agreement;
currency of the loan;
amount of the loan;
purpose of the loan;
interest rate to be charged to the loan;
details in respect of the term of the loan and the final maturity date;
the name and title of each signatory signing for and on behalf of the foreign
lender;
a repayment schedule detailing the amount(s) and date(s) for repayment of
theprincipal amount of the loan and interest;
a clause indicating applicable law governing the loan agreement; and
details of the party responsible for paying withholding tax (if applicable).
It is important to note that as well as signing the loan agreement, there is a
compulsory requirement for the borrower to affix a common seal. Prior to
submission of the copy of the loan agreement to BoT, the document should
also be attested by a notary public and commissioner of oaths. The lawyers
negotiating the finance documentation for the borrower can carry out this
attestation process for the borrower.
In addition to the loan agreement, a potential borrower is required to produce
ashort-form letter to its commercial bank formally instructing them to
commence registration of the loan with BoT. A copy of this letter will also need
tobe submitted to BoT along with the rest of the documentation cited above.

FAQ with BoT

In order to seek further clarity on a number of points and to better advise our
clients with respect to BoTs registration requirements, we raised the below
clarification questions with senior members of the debt management department
at BoT. Please see the responses below to our queries.

Q. Please can you confirm how detailed the repayment schedule contained
within the loan agreement needs to be? For example, is it an absolute
requirement that each specific date, principal amount of the loan and interest
amount to be applied needs to be clearly stated?
A. Yes it is a requirement that each specific amount of either disbursement,
principal repayment or interest payment with the respective dates must be
clearly indicated in the loan agreement document. It may take the form of
payment frequency (i.e monthly, quarterly, semi-annual or annually) or it may
bepresented in tabular form.
Q. Further to the above question, you will appreciate that sometimes it is just
not possible to provide an exact number in the repayment schedule because
the calculations and/or dates are influenced by changes to the interest rates
or other commercial reasons. Therefore, can approximate figures be used
instead?
A. Yes realistic approximate figures or payment dates may be acceptable/used.

Further information
If you would like further information
on any issue raised in this update
please feel free to contact:

Peter Kasanda
Partner, Dar es Salaam
E: peter.kasanda@clydeco.com
T: +255 768 983 003

Q. Does BoT charge the local bank making the application for registration (for
and on behalf of the borrower) a fee payable for obtaining the DRN? If so, how
much is the fee?
A. No absolutely no fee is payable for obtaining the DRN from BoT.
Q. Please can you categorically confirm whether or not any other debt
instrument (except for a loan agreement) is required to be submitted by a
borrower to BoT for registration purposes? For example, documents such as (i)
letters of credit, (ii) guarantees and/or (iii) loan notes?

Associate, Dar es Salaam

A. In as far as our mandate is concerned and for the purpose of issuing a DRN,
only loan agreements containing all the information indicated above are required
to be submitted by the borrower through its local commercial bank to BoT for
registration.

E: salim.bharwani@clydeco.com
T: +255 768 983 007

DRN: Condition Precedent v Condition Subsequent to funding

Salim Bharwani

Michaela Marandu
Associate, Dar es Salaam
E: michaela.marandu@clydeco.com
T: +255 768 983 024

Clyde & Co Tanzania

11th Floor, Golden Jubilee Towers
Ohio Street, PO Box 80512
Dar es Salaam, Tanzania
T: +255 768 983 000/022
F: +255 222 103 004
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Clyde & Co LLP 2016
CC009927 - March 2016

From a transactional perspective, it will be of paramount importance to any

international lender that the DRN is obtained immediately following execution
of the loan agreement. We would also advise that the DRN be included in the
loan agreement as a condition precedent (CP) to funding in order to reduce
the risk of non-payment by a borrower. For this approach to work, it is crucial
that the ground work for registering the loan with BoT is undertaken by the
borrowers commercial bank from the outset of the transaction. Based on our
detailed discussions with BoT, we understand that a DRN can be issued following
execution of the loan agreement and prior to the first disbursement of the loan, if
the necessary documentation is submitted to BoT promptly following execution
of the loan agreement.
If there is a time delay between execution and submission of the relevant
documentation, BoTs default position is to assume that the first disbursement
has already been utilised by the borrower. The borrower would then be required
to provide certified copies of bank statements as well as the SWIFT message
evidencing receipt of the loan disbursement into its local account. If this happens,
the international lender would have to get comfortable with waiving the DRN CP
requirement to a condition subsequent.