The extraordinary Nigerian jumbo

By Padraic Fallon

The second jumbo was also to be a billion; more, if the loan was well received. Six of the largest banks in the world agreed to underwrite $500 million. The price and the fees were more generous than on the first jumbo, in spite of the sharp fall in spread since and Nigeria's tiny debt.

It should have been oversubscribed. Instead, it ran into almost unbelievable problems. The cover story is an account of those problems, and the questions they posed for the Euromarkets.

The argument was taking place over 3,000 miles of telephone cable. In London, the syndication officers of six of the largest banks in the world were huddled around a desk in the offices of First Chicago Limited. On the desk was a squawkbox, a conference telephone. Talking heatedly into the other end, in Lagos, was U.K. Bello, deputy permanent secretary at the Nigerian Ministry of Finance. The Nigerian was telling the banks that any fresh funds dribbling in for his country's jumbo loan should be added to the $750 million that the banks had either underwritten themselves or drawn like a tooth from the reluctant Eurodollar market, and not be used to help the banks increase their meagre selldown ratio. “When we said No, that the aim from day one had been to achieve a better selldown of the loan than last time, we were accused of being on the side of Nigeria's enemies in the cement dispute,” said a lead manager present.

Yet another stumbling block had appeared in a deal which, in the words of another of the lead managers, had been in danger of breaking down completely with the lead managers threatening to withdraw their commitment to underwrite $500 million.

This deal had everything: an intermediary whose job was never properly defined, but who was supposed to represent the new role of the investment banks; a parallel financing in Deutschemarks whose existence was apparently not known to some of the lead managers when the mandate was awarded and which destroyed the loan's chances of success; immense confusion among international banks over Nigeria's projects; charges of misrepresentation on both sides; serious legal hitches; threats and counter-threats; countless meetings; problems with the information memorandum; frantic visits to Frankfurt and a hurried visit by the Nigerian Solicitor-General to London; and, overriding everything, a feeling among the Nigerians that the alien banks, as they are called in Nigeria, did not understand the sensitivities of a Black African borrower.

It began so differently. All concerned were determined to avoid the problems that Nigeria's first jumbo loan ran into a year ago (Euromoney, November 1977), when a poor price (1% over seven years, with ½% management fee), and serious problems with the information on outstanding litigation over the cement cases led to a small selldown of only 15%. It did not augur well for relations between Nigeria, a country still intensely conscious of its relatively recent colonialist past and struggling with the sudden bonanza of an annual $12 billion in oil export revenues, and the foreign banks who probably failed to appreciate the sensitivities of the other side.

This time, it was to be different. And, to begin with, it was. There was none of the knife-edge competition for the mandate that characterized the last loan, although Chase Manhattan (one of the three joint lead managers last time) and First Chicago were jockeying for the prime position of being Nigeria's main bank; Chase reportedly asking to be the agent bank which would have given it a central position in Nigerian dollar financings, and First Chicago said to be seeking a key liaison position through its  interest in International Merchant Bank in Lagos, which it got, and which was to  be the most important channel of  communication throughout the deal.

But there had been a sharp change in  Nigeria's fortunes. The big spending days  were over. Imports had risen sixfold in  five years, compared with a fourfold  increase in the value of oil exports, while  non-oil exports less than doubled. Last year's trade surplus of $2.1 billion was down sharply on the $7 billion surplus that Nigeria ran in 1974. It is widely believed that the surplus this year would be smaller, or even non-existent, if Nigeria had not decided to increase oil production to capacity and sell its crude at large discounts. The overall balance of payments slipped into deficit in 1976, a deficit that increased to $686 million in 1977. And while few, if any, expected Nigeria to run a large surplus while it was committed to a major development plan,  the rapidity of the change was disquieting.

The country's reserve position showed an even greater change. Reserves reached a peak of $5.8 billion in December 1975. From there on it was down, down, to $1.87 billion in August. What was more, the Nigerians had been strongly diversifying their reserves (Euromoney cover story, October 1978); initially away from sterling (54% of reserves in 1972, cut to 18% by the end of 1976); and, more recently, away from the dollar (24% at the end of 1976, cut to 18% by February this year). Nigeria's own explanation for the drop in reserves: “The combined effect of a significant decline in  oil exports in the first quarter of this year, and over-inventorying by importers in  anticipation of restrictive fiscal  measures”, adding: "Exports of crude oil  have improved and payments with  respect to the inventories have in large measure taken place. It is therefore  expected that the international reserve  level will stabilize in the second half of the  year as the increased receipts from oil  exports begin to flow in.” Those  comments are drawn from the draft  information memorandum, which projects crude production at 1.9 million b/d in the first quarter of 1979, compared with 1.65 million b/d in the first quarter this year. Optimistic? Not necessarily, because projected average take per barrel does not go up by as much.

Most of the other measures taken by Nigeria’s military government this year have suggested a growing cash shortage. Some of them smacked of panic. During the summer, for example, Nigeria abruptly dropped double taxation agreements with nine countries, including Britain, its largest supplier (West Germany is catching up fast), and slapped levies on foreign airlines, shipping companies and construction corporations. Earlier, in the April budget, government spending had been chopped in recognition of a drop of a fifth in projected revenues, but the economy still showed many of the signs of a superheated importer. General James Oluleye, Nigerian Commissioner of Finance, said in a recent speech: "We have been running down our foreign exchange reserves in order to finance current consumption. We can therefore justly, but shamefully, be called a nation of importers." One of the more bizarre symptoms of this import craze: Lagos traffic controls allow only cars with odd-number licence plates one day, even numbers the next. It was against this background ­­– an ambitious Third Development Plan with grandiose projects, an import boom and a slump in demand for oil – that an event took place that was to cause Nigeria and its bankers a great deal of embarrassment, and ruin the prospects for the success of its next jumbo loan.

In October last year, the Nigerians. awarded a turnkey project to a German consortium headed by GHH, and including Brown Boveri and Lurgi, for the construction of the Delta Steel Plant at Aladja, Warri, in the south-west of the country. The plant will use direct reduction technology, drawing on the natural gas flared off from the oilfields nearby. The Warri project, as it came to be known, was to be the biggest headache of all. At the time, however, it was a relatively straightforward operation, because the Nigerians were paying for it in cash.

Then came the drop in Nigeria's first quarter oil experts, and the fall in reserves (banking sources report heavy sales by  the Nigerian central bank of prime quality dollar paper and schuldschheindarlehen earlier in the year). In April this year, therefore, the Nigerians renegotiated the project. Instead of cash, it was to be paid for by a DM750 million project financing from a syndicate of 12 banks led by Deutsche Bank, and including Dresdner Bank. To say the least, the change in the basis for financing the project was not widely known. Yet.

The total cost of the project was to be DM2 billion. Later in the year, when West German Chancellor Helmut Schmidt visited Nigeria, it was Announced that Hermes, the German export credit agency, would provide a DM1.2 billion export credit. Said a German banker: "That set a precedent; first, because it is not the usual practice to give an export credit when a contract has been renegotiated, and second, DM1.2 billion is the largest single credit ever granted by Hermes." The effect was to take the pressure off Nigeria's dwindling reserves, and to provide the German banks with the opportunity to do what they really like doing: finance their customers' projects, instead of granting all-purpose credits to the developing world.

From here on, one of the mysterious figures in international banking was to play a strange role in the Nigerians' negotiations with banks in the West. Offered such conflicting advice when they came to the Euromarkets for the first time a year ago, the Nigerians hired First Boston (Europe) to advise them on their borrowings. At the time, the decision was hailed as a great new departure for the undercapitalized investment banks. The Nigerians had one major example of this before them: the decision by the Indonesians to hire Kuhn Loeb, Warburg's and Lazard Freres to advise them on their borrowings after the Pertamina affair. The appointment of First Boston (Europe), made midway through the syndication of Nigeria's first jumbo a year ago, came too late to affect the first loan. But not the second.

The man at First Boston advising Nigeria was Yawand-Wossen Mangasha, one of the strangest figures in international banking. Mangasha (Wossen to his friends) is an Ethiopian, a former deputy governor of the Ethiopian central bank, who during the negotiations for the latest Nigerian jumbo financing acquired an undeserved reputation for arrogance among the lead managers of the loan.

Mangasha, shy, bespectacled, is an African's African with a strong faith in the future of Africa and a corresponding feeling that westerners do not understand the growing pains of the dark continent. His own recent history is startling.

In 1974, Mangasha and his boss, the governor of the Ethiopian central bank, were at an IMF Committee of 20 meeting in Washington. During the meeting Mangasha and his boss heard that the 44- year reign of Emperor Haile Selassie had ended in a bloody revolution and a left-wing regime. Mangasha decided to stay. The governor went home. He is, reportedly, still in prison, and so, strangely enough, is his successor. Mangasha, with the help of his friends in Addis Ababa, got his wife and children out of the country and into America, spending a few months staying with friends in Florida before he was hired for First Boston by his old Harvard classmate, Minos Zombanakis.

To First Boston, Mangasha's attraction probably lay in his contacts among Black African central bankers and finance ministry officials. In at least one sense, those contacts and knowledge paid off for First Boston: they landed the Nigerian contract for the bank. Mangasha's role was to advise Nigeria on both its borrowings. and on the management of its reserve assets. In return First Boston was reportedly paid an annual fee of less than $50,000 – plus the commission on the sale or purchase of securities by the central bank. With the sale of large amounts of high-grade securities by Nigeria as it ran down its reserves, the commission income to First Boston is believed to have run into millions of dollars.

But apart from his disputed role in the loan negotiations, another event was to put Mangasha's future, and the future of that commission income, in doubt. That was the absorption by Credit Suisse White Weld of most of the international business of First Boston, and the change of name to Credit Suisse First Boston which meant that First Boston (Europe), Mangasha's main employer, no longer existed. Where would the Nigerian contract go?

Mangasha was one of the few First Boston (Europe) executives that Credit Suisse First Boston offered to hire. CSFB asked him to be vice-chairman. Mangasha has decided not to take it. The Nigerians, deeply suspicious of the role that the Swiss banks play in selling gold for the South African government, wrote to Mangasha in no uncertain terms telling him that if he moved to Credit Suisse First Boston his relationship with the Nigerian government would be terminated. That's left the Ethiopian in a quandary: since First Boston's African business is to be vested in Credit Suisse First Boston, it's meant that he cannot continue as he has. Late last month, Mangasha was still pondering his own future, and that of the Nigerian contract.

When the Nigerians realized, within months of signing their first jumbo financing, that the renegotiation of the Warri contract on a project financing basis was not going to be enough and that some of the projects in the plan would grind to a halt if they didn’t borrow more, Mangasha was summoned to Lagos. He was told to sound out the banks for a possible $1 billion syndicated Eurodollar financing. According to some sources, Mangasha protested that this was too much and too soon after the first jumbo financing. He may not have protested loudly enough.

Back in London, he made a tactical error that upset banking etiquette. Instead of visiting the banks individually, or arranging for the interested banks to meet him on neutral ground, he asked them to  come to his own office. To the bankers  who came, it smacked of an arrogant summons. According to a former colleague, it was not. "Wossen's the opposite of arrogant, but he only feels comfortable on his own ground."

At the meeting, Mangasha told the banks that Nigeria wanted to raise another $1 billion. Could they do it, and on what terms?

It was soon to become apparent that Nigeria was prepared to concede relatively generous terms in order to get its funds. "When that became obvious, we talked ourselves into believing that it would be easy to get to a billion, fully underwritten" admitted a lead manager later. When a letter came from the Nigerian Ministry of Finance asking for tenders, six banks therefore offered to put together a financing of $1 billion over eight years, the first four years at a spread of 1% the rest at 1⅛%. The management fee was ¾%, the lead managers' praecipium ⅛%.

The terms looked very generous. The spread on the last Nigerian jumbo was a flat 1% throughout (and could even have been ⅞% if the Nigerians had accepted a bid from one of the three banks that was to lead manage the financing), and the management fee ½%. Spreads have fallen sharply over the last year, so sharply that Nigeria would apparently have been justified in demanding much tighter terms – even taking into account the deterioration in its reserves since. The country had no debt servicing to speak of; if it chose to re-enter the market on  more generous terms, $1 billion might be  only a starting point. The selldown might  be so great that $1.2 billion would be  possible.

Somewhat to the banks' surprise, Nigeria accepted the terms without  demur. Six lead managing banks – First  Chicago Limited (running the books);  Chase Manhattan Limited (loan  agreement); Citicorp (information memorandum); Dresdner Bank (signing  arrangements); National Westminster  Bank (agent); and Midland Bank (publicity arrangements) – agreed to  underwrite $500 million between them,  with Dresdner and Nat West each underwriting $100 million, the remaining four $75 million each.

"Bello (the Nigerian deputy permanent secretary of finance) got us round a big table and told us we had the mandate" said a lead manager later. "The spread was not an issue. Bello could have insisted on 1%, and the managers would still have gone in. We expected major support from banking pockets – in London, Frankfurt, Paris and so on. We'd offer positions of $25 million to co-managers (Banque Nationale de Paris and Société Générale were in as managers underwriting $50 million each), get to a billion, then sell down about a third, and go for more, maybe a billion one, even a billion two if we could get another ten banks in at $25 million apiece.”

So this time it was to be different: better terms, a better selldown than on the first jumbo when the managers shed only 15% from their books, and a wider geographical spread of banks that would do much to improve Nigeria's standing in the markets. "The broad aim was to get a lot of banks in," said one lead manager. "I thought that the willingness of the Nigerian government to accept a higher spread was symbolic, a sign of courage," noted another.

It seemed an excellent strategy, and it probably was. Bello, noted another manager, was "sensible and pragmatic." Y»Ìˇøù•\00271";mso-bidi-font-family:">Y»Ìˇøù•\00271"; mso-bidi-font-weight:bold">Preparing the information memorandum and loan documentation would be much easier, with the headaches ironed out by the first jumbo. The announcement was made to the press on July 7. The managers were ready to go to market.

It was then that the shock came. "The market just didn't want to know," said a manager after the syndication had begun. "We were very surprised," said another, "to get negatives from German, Swiss and French banks. The Japanese just weren't interested. So we began to dig, and we soon found out why."

Warri was the prime reason. The German banks, which the managers had relied upon to provide major support, were already committed to financing the GHH consortium for the steel production plant. And the project had obvious advantages, in the sense that it was a financing where the banks had tight control over disbursements: if the agreed stages of the project had not been reached, the German banks could simply withhold further funds. Warri meant that DM750 million had already been put aside by the Germans for Nigerian risk; they just didn't want to know about a general Eurodollar credit.

The more the managers dug, the worse it got. Soon the managers discovered that banks throughout the world had lined up funds for corporate customers who hoped to land projects all over Nigeria, and which had been negotiated not with the Nigerian Ministry of Finance (the only body that can actually authorize official loans from abroad) but with the Ministry of Industry and even with local state officials. The Japanese banks, for example, were prepared to provide lines of finance for petrochemical projects, Bank of America was reportedly behind a major telecommunications project being negotiated by ITT, and so on. "It meant," said a manager, "that there was more money committed to Nigeria than Nigeria could possibly use. That was the crazy part of it." Said another: "With elections coming up next year, every would-be politician had been negotiating with the big men who came in from overseas to build a factory in their home town."

The first intimation that there were big blocks of finance already committed to Nigeria came when the managers began following up the invitation telexes, "Until then we hadn't been aware that the banks who'd have been prime customers in syndication had already latched on to their own customers" admitted a manager. The odd part about that was that at least some of the managers sitting around the table with Bello when the mandate was awarded had certainly known of Warri; Dresdner Bank for one, as it is also in the Warri financing. "We certainly felt that everyone else there knew," said Dresdner afterwards. But at least one manager said that it did not. "Neither Dresdner nor Nigeria revealed that there was a major German financing,  and that there had been since April," said that manager, claiming: "Bello was very directly asked whether there were project financings in the market. His answer was inaccurate. It's unfair to say he misled us, but it was inaccurate." Another admitted: "If we'd made a few calls into the market when the mandate was awarded, we'd have uncovered those blocks. We'd have sat down with Bello and gone for half a billion."

By then Mangasha had been pushed to the side in the negotiations between the managers and the Nigerians, which now took place directly between First Chicago's Lagos merchant bank and the Ministry. The task now was to unlock some of those funds committed to projects, releasing them into the Eurodollar credit.

To do that the Nigerians had to convince banks everywhere that only the Finance Ministry, and not the rival Industry Ministry, had the power to authorize foreign loans, and that in future loan negotiations would be centralized through the Finance Ministry. The managers drafted a letter that the Nigerians signed which was incorporated in the draft information memorandum. It was dated August 3.

The letter pointed out that the Ministry of Finance had given an undertaking that Nigeria would not re-enter the floating rate Eurocurrency credit market before January next year, and went on: "It had been reported to the Ministry of Finance by the management group that a number of banks have not taken any final decision to participate in Nigeria's $1 billion syndication because some of their customers are competing to secure or have secured government contracts for which the banks might be called upon to provide finance ... To avoid any misunderstanding we feel it necessary to reiterate that the Federal Government attaches the highest priority to the financing of these and other projects through the syndicated loan which it is presently raising. We would like to stress that we attach much value to seeing the $1 billion loan well placed and accepted by the market, in view of the important role such a loan plays in the financing of Nigeria's capital budget and consequently in the financing of your customers' projects." Warri was a "possible" exception to this.

It went on: "…the Federal Ministry of Finance is solely responsible for negotiating and concluding any agreement for external borrowings or guarantees for all public sector borrowings by both Federal and State governments and their agencies. In the case of state credits, it is necessary to point out that their external borrowings are limited only to export credits and project loans procured on their behalf by the Federal Government from the World Bank or regional development banking institutions such as the African Development Bank."

The letter ended with the Ministry of Finance calling on those banks that had made commitments to ministries or government agencies to finance projects to "transfer such amounts to the $1 billion syndicated loan presently being arranged."

It didn't work. Either the banks did not believe that Nigeria would shun project-related loans, or they still did not think that Nigerian risk was attractive enough to entice them into the syndicated loan. The managers kept the books open, a few more banks drifted into the management  group, but on September 12, the  managers had to announce that the loan  had been cut to $750 million. A fresh  letter, confirming that the $750 million  would be used for projects only was  incorporated in the information  memorandum. The cut in the amount was  a bad blow to Nigeria's prestige. But  there was worse to come.

In the meantime, an obvious way of  saving face presented itself: if the German  bank financing for Warri could be  incorporated in the Eurodollar loan, there  could still be a signing ceremony with a  magical billion-dollar tag. "That," said a  lead manager, "would have made  everyone very happy." The Nigerians, led  by S.A. Musa, Permanent Secretary at the Ministry of Finance, set out to bring  the Germans in.

The obstacle was that the Warri  project financing would no longer be a  project financing. It would simply be part  of the overall credit. The German banks  would not be able to control the flow of  funds into the project. "The Germans are  happy to incorporate the Warri funds into  the syndicated credit, but the money must  be earmarked for the project," said a  German banker at the time.

For weeks, the negotiations got nowhere. The managers of the syndicated loan kept the books open after the official  closing date of October 3, attracting  sufficient funds in to achieve a small  selldown until, finally, Musa made move.

When he moved, he moved quickly. On  the night of Friday, October 6, Wossen  Mangasha was staying at the Algonquin  Hotel in New York. A telephone call told  him to be on the next flight to Frankfurt.  Musa had arrived in Europe.

Mangasha flew into Frankfurt, teamed  up with Musa and together, the Africans  went to the meeting with the managers of  the Warri project financing.

Everyone present at that weekend meeting in Frankfurt knew it would be a tough meeting, and it was. But at the end, Musa and Mangasha emerged smiling. The Germans had agreed to incorporate the Warri financing in the jumbo. A week later, the news was handed to the daily newspapers, where it was hailed as a coup for the Nigerians.

The reality was a little different. "Musa told the Germans that there would be no Warri deal at all unless the banks came in" an eyewitness reported. "He left the German banks with no choice." Said a German banker: "We had the impression that while the threat wasn't actually made, the Nigerians would withdraw their deposits from the German banks and pull everything out if we didn't go in."

But the Germans didn't give in easily. At the same meeting they had managed to extract a promise from the Nigerians that there would be a side-letter to the German banks, promising that the German funds would be channelled exclusively into Warri. Also mooted was a segregated account into which the German funds would be placed, from which they would be disbursed on a project basis by the Nigerian Central Bank and Deutsche Bank, creating what one manager called "a sort of sub-agency". The Germans were merely putting the Nigerians on their honour; the side-letter would have no legal standing whatsoever. As far as the loan agreement would be concerned, the German banks would be in exactly the same legal position as the participants in the original jumbo loan.

Could Musa have made good his threat? Probably not without doing Nigeria an immense amount of damage. Part of the funds for Warri were actually needed to pay German contractors for work already done, such as site clearing. But in German bankers' eyes, the project had already gone too far down the road to cancel the German contracts and begin again. So why give in? "We'll get the side- letter" said one German manager, "and that, while it will not have any legal standing, will be just as effective as any loan agreement."

In the midst of the negotiations with the Germans, an event took place in a Paris courtroom that was to shatter the lead managers' faith in the accuracy of the information provided to them by the Nigerian Ministry of Finance, information that was incorporated in the draft placement memorandum.

The last section of the memorandum dealt with the cement litigation, one of the problems that plagued Deutsche Bank when it compiled the memorandum for Nigeria's first jumbo. Most of the lawsuits, said a statement on page 80 of the draft for the latest jumbo, have been settled. It listed seven suits that were still pending or being settled, including Nigeria's possible liability for each, and then moved on to the arbitrations "pending or being settled". There were two. The first, the smoking gun that was to cause more headaches than practically any other aspect of the financing, stated simply: "Ipitrade International Inc. against Federal Republic of Nigeria. Amount claimed is FF4 million (approximately $820,000). Award has been made by the International Chamber of Commerce, Paris. The Cement Contracts Negotiating Committee has agreed to meet with Ipitrade to work out payments."

The statement was dynamite. Within weeks of it being written, a French court was to slap an attachment order on Nigerian funds in France, effectively blocking the French banks from taking part in the jumbo. "As far as the loan is concerned, the French banks are now impotent" said a resigned manager.

Ipitrade (see box) had shipped cement to Nigeria in 1975 against irrevocable letters of credit from the Nigerian Central Bank. The letters of credit were then apparently cancelled after the shipment had been made. Ipitrade went to the International Chamber of Commerce in Geneva, invoking the arbitration procedure,' and was awarded $10 million for breach of contract. When Nigeria did not pay, Ipitrade finally applied to the Tribunal de Grande Instance in Paris which in turn blocked Nigerian bank accounts in France.

It was a terrible blow to the loan. For one thing BNP and Société Générale were in for $50 million each, so if the French banks were to be excluded it would mean that the loan would probably need to be cut by $100 million – if it went ahead at all. But worse again was the fact that the Nigerians had apparently not provided the whole picture when listing outstanding litigation in the information memorandum. To the management group, it put a question mark over the rest of the information on the outstanding lawsuits.

They took drastic action. On Tuesday, October 17 they sent a strongly-worded telex to Lagos, demanding that the Nigerians instruct their lawyers to provide the fullest information on all outstanding litigation. The telex demanded that (1) the lead managers be authorized to get testimony on outstanding litigation from Nigeria’s  counsels, (2) that the information relating  to litigation on page 80 of the information  memorandum be amended, (3) that all  outstanding appeals be settled before  signing, and (4) that if any bank had an  attachment order placed on it, all the  other banks in the loan should have the  option to pull out of the loan. The last demand was to be softened because, in the  words of one manager "it was too hard,  too destructive."

Allen & Overy, the lead managers’  solicitors, were instructed to obtain  written testimony on the cement litigation  from Nigeria's lawyers in the centres where litigation was taking place. That  demand brought a remarkable response;  the Nigerian Solicitor-General arrived in London three days later to meet the managers and their lawyers.

“The whole thing is so unnecessary," a lead manager pointed out. "Nigeria could have settled all these years ago. Instead it’s chosen to fight. We've advised them throughout that they must avoid having Nigeria's sovereign name dragged through the courts. The amounts are so small, but they're putting a billion-dollar loan at risk. They're convinced that Ipitrade is some sort of Russian-backed organization".

On Tuesday, October 24, the banks assembled at First Chicago for the 12th or 13th managers' meeting (most syndications only require two or three).

They were told that the Ipitrade suit appeared to be settled. The lead managers were given a formal declaration from the Nigerian Solicitor-General that the case had been resolved. The managers were later to be told by representatives from Ipitrade that the French company had issued a dispatch certificate to the Paris court, lifting the attachment order. The managers breathed a mighty sigh of relief.

The Nigerians had apparently also reached another critical decision: they had decided to relinquish the legal defence of sovereign immunity in the remaining litigation over the cement cases. They had taken the welcome decision to fight the cases in the open. "They hated being the test case for sovereign immunity" said a banker close to the Finance Ministry, in a reference to the Trendtex case (Euromoney, October 1977).

As we went to press, the loan was moving nearer to a signing date. Both sides agreed that it would tempt fate to name a date; the managers were feeling greatly relieved that not a single bank had left the management group; and the selldown was approaching $100 million. It was even possible, said one manager, that there would be a last minute burst of enthusiasm from the Japanese banks, but the loan amount appeared to be staying at 750 million, plus the German tranche, whose value was increasing daily with the rise of the Deutschemark. There could, one of the managers believed, even be a signing early this month. It appeared to be all over.

What of Mangasha, and the new role for the investment banks in advising borrowers that the appointment of First Boston was supposed to herald? It's plain that Mangasha was given no discretionary negotiating powers whatsoever by the Nigerians. His own assessment was that he had merely opened the negotiations on the Nigerian's behalf, bringing everyone together, acting as a courier between Lagos and London (he travelled back and forth an estimated. 10 or 11 times during the negotiations) advising the Nigerians on the terms and conditions that they might expect, and helping to bring in the Germans.

Was his advice good? More to the Point, was it taken by the Nigerians? Mangasha, naturally enough, shuns such a sensitive question, but it is believed in some quarters that he felt that $1 billion was too much, and that half that amount would have been more appropriate. The managers of the loan certainly did not take a charitable view of him. "He was a structural irrelevancy" said one. "During the earlier stages of the negotiations we communicated directly with him," said another, "but we discovered that a lot of what we told him did not appear to be passed on to the Nigerians. Pretty soon we started communicating directly with Lagos". Another added: "It's hard to say that he played any role at all."

A former colleague defended him: "He's the little guy who was able to pull the deal together again. After all, it was Wossen Mangasha and the Nigerians, not the lead managers, who brought the German banks along. And he was very central to the early negotiations."

And the future of Nigerian financing in the Euromarkets? The first jumbo financing did not go well, but it had the problems that banks might reasonably expect from a newly-rich developing country coming to the Euromarkets for the first time. The experiences with second jumbo financing, however, do not augur well for future Nigerian deals. "Can we rely on their creditworthiness after this?" asked a lead manager rhetorically.

There remained other unanswered questions. Why did Nigeria go for a jumbo? "They added up all the project requirements, deducted Warri, and found that half-a-billion just wasn't enough," said a banker closely involved in the earlier deal. "They even considered a yen parallel financing at one stage." Most agreed with that assessment.

Why did the Nigerians not wipe the slate clean of the cement lawsuits before coming to the market? "Because they think differently," the same banker explained. "There's a huge gap between Africa and the established banking community. In Africa, they take these things personally. They felt that, whatever the position in international law was, they'd been screwed by the foreign cement suppliers, and they weren't going to let them get away without a fight."

Why did the Japanese banks, hitherto ready takers of big credits in spite of the recent restraints placed upon them by the Ministry of Finance in Tokyo, not go in with a rush? "Four reasons" replied a Japanese banker. "One, Nigeria has borrowed too much, too quickly. Two, the credit is too big for a single borrowing. Three, Japanese banks do not know Nigeria – or any other country in Africa. And four, the proposal to centralize its borrowings means that the banks will not be able to see that the funds are used for specific projects. That means that Japanese exports for the projects cannot be financed directly by Japanese banks. So we wouldn't be directly helping our customers."

Looming over everything was the deep suspicion with which the Nigerians appeared to regard foreign bankers and suppliers. The cement dispute is blamed for much of that. A lead manager explained: "It made everyone in Lagos afraid to act in favour of any foreign supplier. No official wanted to be accused of giving anything away." Another banker who had worked closely with the central bank commented: "The Nigerians think they're the victims of an international conspiracy. They feel misunderstood and misrepresented." Perhaps it was a clash of cultures, as much as anything else, that produced the impasse over Nigeria's second jumbo financing.  

Ipitrade, the company which is trying to collect on its sale to the Nigerian government, is part of a ramifying Communist trading empire run, according to the purest capitalist principles, by France's communist millionaire Jean-Baptiste Doumeng. A 50% share of Ipitrade is held by Interagra, the agricultural import-export company which Doumeng has built up into France's largest food trading organization, specializing in sales to the Soviet Union and Eastern Europe.

In 1972, Doumeng negotiated the sale of one million tons of wheat to Russia, hungry for foreign produce following a harvest failure. This was followed by 120 thousand tons of butter in 1973, over 100 thousand tons of meat in 1974 and, in 1976, a cut-price sale which shocked consumers in the Common Market countries, a further 50,000 tons of Europe's butter mountain. The communist millionaire scoffed at criticism. Teaching his capitalist grandmothers to suck eggs, he pointed out that it was a matter of elementary economics that produce should be sold rather than maintained expensively in stock.

A longstanding customer of the Soviet Banque Commerciale pour L’Europe du Nord, Interagra has been accused in the past of operating with funds from Moscow. This may have been true during its early history. Its subsequent commercial success has been such that it has certainly now been living on its own fat profits for many years free from the need of cash injections from the Soviet Union.

Interagra is the key holding company in the Doumeng organization – a closely-meshed pattern of some 30 agricultural cooperatives of which the leading member is the Union Cooperative Agricole du Sud-ouest, based in Toulouse. Doumeng and Ucaso each hold 35% of Interagra and their combined turnover was said to be $2 billion in 1976.

Among Doumeng's most spectacular  successes is the model beef cooperative in south-west France. Europe's biggest factory ranch, it fattens over 10,000 head of cattle each year and the technology for six similar ranches has been sold, for a reported price of $6 million per unit, to the USSR, Romania, Czechoslovakia and Zaire.

Successfully running with the hare while hunting with the hounds, Doumeng managed to import a million hectolitres of Algerian vin ordinaire in 1972, when French winegrowers in the south-west were being encouraged by the Communists to demonstrate against such cheap foreign purchases.

The self-taught Doumeng, who revels in the "red millionaire" label, was born the son of poor peasants in south-western France. The legend, which he never contradicts, has it that as a 12-year-old shepherd boy he took works of political economy with him to while away the long hours in the upland pastures. During the Second World War he did an undercover quartermaster's job, running the supply-network for the local resistance. Post-war scarcity found him ready to meet the challenge. Inaugurating what was to be a long career in East-West trade, he requisitioned a train to import the surplus resulting from a bumper potato harvest in Czechoslovakia. This operation, it is said, produced the profit on which he founded the beginnings of his empire.

In 1952, he went to Moscow for a trade conference and has since figured in virtually every major East-West agricultural trade deal. Neither too proud, nor too dogmatic to hobnob with millionaires of other persuasions, he regularly rubs shoulders at board meetings with some of Europe's most prominent hereditary capitalists. He holds 15% of the stock of the Banque Stern, the merchant banking organization, of which Rothschilds own 30%.

Stocky, grizzled and with no  pretensions to sartorial elegance, Doumeng has adopted a life-style closer to that of a Hollywood millionaire of the 'thirties than a paid-up member of the French Communist Party. But, in spite of the luxurious villa and the swimming pool, the gargantuan gourmet spreads and the other trappings of luxury, he is said to hand over half his considerable income to the party's funds.