Uncertainty over Transcorpâ€™s $500m investment in NITEL
Category: Capital Market
There is uncertainty over the fate of the $500 million invested in NITEL by Transnational Corporation (Transcorp). Vanguard investigation revealed that the federal government might not refund the money to TRANSCORP.
“ There are a lot of issues involved in the sale of NITEL to Transcorp. So when the new company that recently won the bid for the 75 per cent of government stake in NITEL pays the money, both the government and management would sit and deliberate if there is going to be refund”, a reliable source close to the Bureau of Public Enterprises (BPE) told Vanguard.
“Remember that government initially was planning to raise money through bonds to pay back Transcorp when it was obvious that the company could not revive NITEL and MTEL.So all the terms of purchase would be looked at eventually and a decision would be taken after all issues are looked into.”
Shareholders are however hopeful that government would refund the money to Transcorp from the proceed of $2.5 billion sale of NITEL to the New Generation Consurtium.They believe that the $500 million would go a long way to boosting the financial position of their company which may eventually transcend to dividend payment and price appreciation of the stocks in the secondary market.“ If Transcorp starts paying dividend and declaring good result the share price will definitely rise. Most investors are showing apathy on the share because there is no dividend. Most of the people that are buying the shares at the stock market are people who have idle liquidity and are hoping to reap in the long run”, said a shareholder.
After three failed attempts by the Bureau of Public Enterprise (BPE) /Federal Government to sell NITEL in 2006, Transcorp beat two other companies in the bidding process to win the bid for NITEL at $500 million.Transcorp had borrowed $500 from a consortium of banks in 2006 to pay the BPE/Federal Government its 51 per cent stake in NITEL/MTEL with the Government holding the 49 per cent stake.
However due to failure to adhere to the terms of the Share Sales Purchase Agreement (SSPA), non-payment of staff salaries as well as non-transformation of the once-viable company into a functional telecommunication outfit in the face of successes recorded by MTN, Zain, Glo and others, the federal government in June 2009 revoked the sale of NITEL to Transcorp.
Four months earlier, 310,000 shareholders of Transcorp had passed a unanimous resolution at an Extra Ordinary Meeting in Abuja mandating the Board of Directors to sell Transcorp’s 51 per cent equity in NITELl/MTEL in order to liquidate the out standing bank loans.The resolution was prompted by the increasing woes of Transacorp which made it difficult for shareholders to enjoy any reward for their investment in the company.
Shareholders of Transcorp have lost almost all their investment in the “mega” company. Last week, its share price closed at close of business on Thursday at 54 kobo per share on the floor of the Nigerian Stock Exchange from the N7.50 offer price per share during the IPO, indicating 92.8 per cent capital lose.
Added to this is the fact that that shareholders of Transcorp, especially those that patronised the public offer, have not received any dividend for their investment since the company commenced full operation till date as it has been bedevilled with one problem or the other which peaked with the revocation of the sale of NITEL which it had a 51 per cent stake.A cursory review of how the company raised funds from the onset showed that in early 2006 it offered a private placement of shares at N6.00 per share, in which the offer was oversubscribed. The company which had a target of N6 billion from the private placement ended up raking N18 billion from shareholders.
On November 23, 2006, Transcorp shares were listed on the floor of the Nigerian Stock Exchange (NSE) thus availing Nigerians the opportunity to be part owners of the mega corporation.Bouyed by the success of its private placement and the takeover of NITEL, the company in December 2006 came out with an Initial Public Offering (IPO).
The historic N60 billion IPO of Transcorp which opened on December 28, 2006 was packaged as a special Christmas gift from the business group to Nigerians with the resonating themes ‘100% Nigeria . 100% World Class.’ and ‘It’s Yours. The company offered 8 billion ordinary shares to the public at N7.50 each.
But the IPO was grossly under_subscribed as a result of loss of confidence in the company by the investing public because of perception problem.Transcorp, which had an initial target of N60 billion ended up raising about N22 billion. Out of N22 billion,Transcorp paid N19 billion to the banks that gave it loan for the purchase of NITEL while, N2billion went straight for resuscitation of NITEL/MTEL operations and N1billion was retained for monthly servicing of the balance of Transcorp’s indebtedness to the banks.
As a result, the company had little working capital and could not rehabilitate NITEL and MTEL. Since then, the fortunes of the company, whose existence was influenced by the former President Obasanjo, had been persistently on the decline. Added to this, the company has suffered from unstable board with turnover of two chief executives from 2005 when it was created and 2008.
First was Mr. Fola Adeola, the pioneer managing director/chief executive of GTBank. Before he could settle down for work, Mr. Bernard Longe, the erstwhile Managing Director of First Bank of Nigeria was asked to take over courtesy of some vested interest but this was short-lived as interest not favourably disposed to Mr. Longe regime invoked the Act of Good Corporate Governance to oust that sacked ex-MD of First Bank.
After Mr. Longe’s exit which saw him berth at Dangote Group, Tom Iseghohi, Harvard trained manager was brought in from the US.In the midst of these some of the founding board members, were pressured to drop their directorship due to the fact that they were holding directorship position in other public quoted companies. Those that relinquished their TransCorp positions include, Alhaji Aliko Dangote, Chairman Dangote Group, Tony Elumelu, GMD, UBA, Jim Ovia, GMD, Zenith Bank and Barth Ebong, GMD, Union Bank of Nigeria and Prof.( Mrs.) Ndi Okereke-Onyiuke, Director General of the NSE .
Transcorp was a child of political circumstance. It was conceived by the Obasanjo regime who had planned to create some Nigeria Multinational companies backed by state power to compete with other companies in the global market place. As a result through what was then known as corporate Nigeria headed by the Director General of the Nigeria Stock Exchange Prof. Ndi Onyuike-Okereke a group of Nigerian business men were brought together to float Transcorp and while Obasanjo was in power the group and Transcorp enjoyed political patronage, good will with a lot of concessions and waivers.
The Corporation was made to look “a Nigerian world-class mega-corporation managed by Nigerians and wholly owned by Nigerians.” Transcorp was launched on the 21st of July 205 at the Presidential Villa Abuja by former President Olusegun Obasanjo.” Because of the way and manner it came on board many Nigerians were sceptical about it from the onset..
But some Nigerians were carried away by all the glamour that came its incorporation. They bought shares in the corporation for N7.50 but today the shares in the market are trading for N0.54 about 92.6 per cent below its par value.A careful study of the prospectus of Transcorp offer revealed a business concern that intended to be a jack of all trades.
There was no particular focus which is very vital for business success. From the start they intended to be in energy, agriculture, tourism, ICT and telecom.With little or no competence in these diverse fields. Experts now with hindsight believes that this lack of competence in core area of interest was responsible for the company’s failure in its bid for the Eleme-Petrochemical plant in Port Harcourt refinery which was rejected because of poor technical bid.
The question being asked now is on what performance indices was the share price of N6.00 per share based during its private placement. Transcorp’s pricing is based solely on projections. Unlike other initial public offers that are based on actual performance.
The company had not met the regulatory requirement of five years track record before it went into the offer . This was the first time a public offer was based solely on the credentials of board members. Transcorp was seen by designing Nigerian as being promoted on a political alter