Many Family Offices in Asia have accumulated large sums of available cash and are ready to provide financing to position themselves for the upcoming commodities boom. Offices we spoke to in Singapore and Hong Kong have expressed willingness to finance Mining Projects, either off the Offices' own balance sheet or through their relationship banks that may be prepared to take some of the production and country risk.
The financing could be structured either as a straight loan or as a pre-payment for the eventual delivery of commodities produced by Mining Company. In the latter example, the loan and interest is repaid through the delivery of goods from the Project.
Phone-call from Family Offices wanting to invest in Mining
The sharp rise in the number of high net and ultra-high-net-worth persons in Asia - the biggest growth being in China, with Hong Kong and Singapore in its wake - has seen a small explosion of single and multi-family offices in the region, said Kate Hodson, a partner in Ogier's Hong Kong investment funds team.
"Although family office is a relatively new concept in Asia," said Hudson, "the mature regulatory environment in the region is pushing its growth, with Hong Kong and Singapore providing a tax-efficient environment governed by common law."
She added, "We get so many requests from clients in HK, Singapore and China to assist on the set-up of a 'family office' - in reality many of these clients want a management company, a fund and perhaps a few separate holding companies for their traditional businesses. These can be tied together with a holding structure that provides some form of succession planning."
She explained that coming out of the investment banks or their own successful entrepreneurial endeavours, the young to middle aged generation in Asia are interested in managing their own wealth and often that of others.
Identify Un-bankable flaws during preliminary Due Diligence
A Lawyer we spoke to at Norton Rose Fulbright said that its imperative to conduct preliminary due diligence (when are running the funding competition) to identify fundamental/“un-bankable” flaws which might impact the Company's closing timetable.
On a previous deal, we identified that the project company’s mining title would expire prior to the final maturity of the project finance facility. The preliminary due diligence exercise allowed the project company to initiate the renewal process, thus limiting any impact on the project finance timetable.
"Mining Companies can offer the banks onshore security over the mining permit, buildings, plant and installations, mining products, shares of the borrower and onshore accounts." added a spokesman at Norton Rose Fulbright, "But these are dependent upon the mine location and specifics in-country."
There may also be rules in-place with respect to repatriation of the offtake proceeds.
If so, the amount may have to stay on-shore for a specific time period, to the extent if it does, that it creates cashflow issues. Once repatriated, the proceeds may have to be converted into local currency, something which NRF have encountered in Turkey and DRC. These can be solved by appropriate drafting and working with the local banks.
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