Market Entry: DRC
Sector: Oil & Gas
Client: Oil Trader
Challenge
No Visibility over Ambitious Real Estate Project: Client managed a €15 million investment obo a Family Office (SFO client) who had acquired a 25% interest in real estate SPV developing a luxury resort including a hotel and conference centre in Europe (Luxury Resort Project). The Luxury Resort Project was a prestige project conceived prior to the credit crunch and was with hindsight overly ambitious. The Client (and their SFO client) were concerned because the Luxury Resort Project was over budget and had missed a key development milestone, and the SPV required investors to inject significant additional funding. The other 75% of the SPV was controlled by property development company (JV Partner) had full control over management of the Luxury Resort Project and declined to review the business plan, or provide sufficient details on the cost and time overruns. The JV Partner was funded by another Family Office (JV SFO) with security over the property portfolio of the JV Partner.
Lawyers acting for the AM opined the Share Purchase Agreement (SPA) for the 25% interest did not offer any way to gain management control, compel the JV partner to buy back the 25% interest, and provided an uncertain path to exit via sale to a third party. Lawyers confirmed their contractual right to conduct further detailed due diligence (DD) after the key milestone was missed.
Action
Rubus advised the AM to trigger their rights for DD, and Rubus was engaged by the SFO to establish a team of specialists to conduct the overt review of the data room material supplied by the JV Partner, and to interview the key staff at the JV Partner who were responsible for the delivery of the Luxury Resort Project.
In addition to this overt DD, the scope of the DD included additional discreet intelligence gathering to verify the material disclosed, to answer questions raised by the overt DD, and to determine the investment attitudes of JV SFO.
Outcome
This supported the confidence of the client to enter the market, structure the deal terms and build a positive relationship with their counterparty.