SPV Formation & Security Packages.

The Special Purpose Vehicle (SPV) is the legal heart of a project-financed transaction. Get its formation and security package wrong and you do not have a deal — you have a memorandum. Here is how it is done properly on African infrastructure transactions.

Why the SPV exists

A Special Purpose Vehicle is a single-purpose company incorporated solely to own, develop, build, operate and own the project. It exists for four reasons:

• Ring-fencing — lenders lend to the project, not the sponsor's balance sheet.
• Non-recourse financing — sponsor liability is capped at its equity contribution.
• Security perfection — lenders can take security over the SPV's shares, assets and receivables as a single package.
• Tax efficiency — the right jurisdiction preserves returns to international investors.

Choosing the jurisdiction

Four jurisdictional choices dominate African project finance:

• Host-country incorporation — required where national law mandates (e.g. for IPP licences, mining rights). Common in South Africa, Kenya, Nigeria, Morocco.
• Mauritius (GBC-1 structure) — the most common intermediate holding structure for Africa. Stable, English-law-influenced, strong DTAA network.
• Netherlands / Luxembourg — for European-institutional-investor-led structures.
• DIFC / ADGM — rising use for MENA-facing projects and where common law is required but a regional presence is preferred.

The right structure is often a two-tier model: the ProjectCo in the host country, held by a HoldCo in Mauritius or similar, which is in turn held by the sponsors. This balances local law compliance with international-investor friendliness.

Core constitutional documents

Three documents define how the SPV operates:

• Articles of Association — the corporate constitution. Must allow the security assignments lenders will require.
• Shareholders' Agreement (SHA) — governs sponsor relationships. Reserved matters, board composition, pre-emption, tag/drag, deadlock, exit.
• Investment Agreement / Equity Subscription Agreement — governs how equity is contributed (tranched, conditional on milestones, etc.).

Lenders will read every one of these. Any provision that limits their ability to enforce security will block Financial Close.

The lender security package

The security package is the bundle of rights lenders take over the project. On a non-recourse infrastructure deal it typically includes:

• Share pledge over 100% of SPV shares (and often HoldCo shares too).
• Fixed and floating charge over all SPV assets — or, in civil-law jurisdictions, equivalent asset mortgages and pledges.
• Assignment of project contracts — PPA / off-take, EPC, O&M, supply agreements, insurances.
• Assignment of receivables — all revenue flows into lender-controlled proceeds accounts.
• Accounts pledge over every SPV bank account.
• Step-in rights via direct agreements with key counterparties, allowing lenders to step in if the sponsor defaults.
• Subordination of shareholder loans and related-party payables.

Direct agreements — the unsung hero

A direct agreement is a tri-party contract between the lender, the SPV, and a critical counterparty (off-taker, EPC, O&M, concession authority). It gives lenders the right to step into the SPV's shoes if the SPV defaults, preserving the contract rather than watching it collapse.

On a typical project, direct agreements are put in place with:

• The off-taker (PPA / concession counterparty).
• The EPC contractor.
• The O&M operator.
• The host government, where sovereign support is part of the structure.

Conditions Precedent — what triggers security

The security package is signed at Financial Close but becomes operative only when every Condition Precedent (CP) has been satisfied. Typical CPs include:

• All project contracts executed and in force.
• All regulatory licences obtained.
• Legal opinions from host-country and lender-jurisdiction counsel.
• Model audit report from an independent firm.
• Technical adviser, market adviser and ESG adviser reports.
• Equity contribution into escrow or paid up to agreed percentage.
• Insurance policies bound and assigned.

Common pitfalls that delay close

• Articles of Association not allowing share pledges — requires shareholder amendment.
• SHA deadlock clauses that conflict with lender step-in rights.
• Off-taker or EPC counterparty refusing to sign a direct agreement.
• Local-law perfection requirements missed (e.g. registration of pledges at a local registry within a limitation period).
• Subordination deeds not executed by related-party creditors.

How AIB Corp Ltd handles it

On every engagement we run a pre-security-package review at Stage 3 of our 6-stage framework. We work alongside international counsel and local counsel to ensure the SPV's constitutional architecture can accommodate the security package lenders will require — before we go to market. Done upfront, it saves 3–6 months at Financial Close.

Related reading: The 5 Pillars of a Bankable Project · Political Risk Insurance & MIGA Guarantees