After a long process, Teleology Holdings Limited has emerged the preferred bidder for 9mobile. It has since paid the non-refundable completion deposit of $50 million for the transaction. This is a major development in the quest to sell the telco. But, it is not over yet for Teleology. LUCAS AJANAKU writes that the new owners have a task to inject life into the telco.
IT is no longer news that 9mobile has a new manager. What is news is the expectation of what becomes of Nigeria’s fourth largest carrier in the hands of Messrs Teleology Holddings Limited – the winner in the bid process to sell the troubled mobile telecommunication firm.
The emergence of Teleology as the preferred bidder is a dream comes through for its promoter Adrian Wood, who was MTN Nigeria’s pioneer Chief Executive Officer (CEO)
Six months after superintending over the first call on the global system for mobile communication (GSM), Wood confirmed that business had been good for the South African firm.
It was believed in the sector that MTN, which paid $285 million for one of four GSM licenses in Nigeria in January 2001, hit profitability less than one year after it launched its operations in the country.
Genesis of the crises
Determined to boost its infrastructure in the ultra-competitive telecoms market that has MTN, Globacom and Airtel as competitors, Etisalat Nigeria approached a consortium of local lenders and got a $1.2 billion medium-term seven-year facility.
The repayment modality for the facility was not in the public space until the economic downturn of 2015 which led to sharp devaluations of the naira, a trend that negatively impacted the value of the dollar-denominated loan. The situation was aggravated by a Central Bank of Nigeria (CBN) policy, which restricted access to foreign exchange.
That policy forced many firms to abruptly closed shops.
According to the telco, the outstanding loan to the consortium stood at $227 million and N113 billion, a total of about $574 million if the naira portion is converted to United States (U.S) dollars. By implication, almost half of the original loan of $1.2 billion has been repaid.
Etisalat continued to service the loan until February last year, when discussions began with the banks on how to restructure the repayment. The telco added that the $1.2 billion loan was efficiently serviced until the early days of this year.
The firm’s engagements to renegotiate the terms of the loan went on for a while and were yet to be finalised, though at an advanced stage.
Some of the options being considered included a restructuring of the shareholding/change in ownership. Final arrangements regarding ownership and board structure are still in development stage.
Sequel to the negotiation, Etisalat Group had informed the Abu Dhabi Stock Exchange of its intention to transfer its shares in the company to an appointed security trustee of the banks.
The trustee is the vehicle employed by the banks to hold the shares on behalf of the consortium.
What has effectively happened is a ‘change in ownership’, and not a receivership, bankruptcy or winding up, so, operations will continue to run and subscribers can continue to access services on the network as usual, the firm had assured.
Banks root for investigation
Sensing foul play, the banks urged the Federal Government to investigate the telco over the management of the loan.
But the telco denied being under any investigation by the Economic and Financial Crimes Commission (EFCC), over an alleged petition to “the Federal Government asking that Etisalat be investigated” on how the funds from the syndicated loans were utilised.
Ibrahim Dikko, its former Vice President, Regulatory & Corporate Affairs, in a statement, had said: “Etisalat wishes to categorically affirm for the avoidance of doubt that the reports are patently false and most unfortunate, considering the damage such misleading information can have on not only our business, but on the telecommunications industry and the country as a whole.
“A simple interrogation of the rigorous process for securing a syndicated loan from a consortium of reputable banks would have exposed the truth to the original writer of this story and other media channels who have subsequently re-circulated the falsehood without interrogation or verification.
“Concerned parties have access to our books and do not require an investigation into how the loan sum was utilised. All of the infrastructure investment and services for which the loan was secured.
“Contrary to the widely reported misrepresentations about Etisalat Nigeria’s debt obligation to the consortium of 13 banks, it has become pertinent to set the records straight. Prior to this time, Etisalat had in fact consistently and conscientiously met up with its payment obligations.
“As at today, we can categorically state that the outstanding loan to the consortium stands at $227 million and N113 billion (a total of about $574 million if the naira portion is converted to U.S. dollars).
“This in essence means almost half of the original loan of $1.2 billion, has been repaid. Etisalat continued to service the loan up until February 2017, when discussions with the banks regarding the repayment restructuring commenced.”
CBN, NCC to the rescue
The CBN and the NCC had moved in as regulators ensure that the loan deal was brought to a peaceful closure.
Their intervention was designed to save over Etisatat’s 4,000 workers, avert asset stripping and maintain the stability of the sector in the eyes of foreign direct investors (FDIs).
CBN’s spokesman Isaac Okorafor said in a statement: “Although it should ordinarily not be the role of a regulator to decide how individual bad loans are resolved, the CBN believes that Etisalat is a systemically important telecommunications company with over 20 million subscribers that if not well handled, may have negative implications for the banking system itself.”
He said the banks might go ahead to downsize the company’s over 4,000 workers without the egulators’s intervention.
The NCC had said its attention had been drawn to a planned takeover of Etisalat by a consortium of banks. Its Public Affairs Director Tony Ojobo said in a statement: “As a result of this planned action the Commission stated that it is aware of the indebtedness of Etisalat to the consortium of banks; in conjunction with the CBN, it had mediated by holding several meetings with the banks, Etisalat and other stakeholders with a view to finding a resolution. It lamented that these meetings did not yield the desired results.
“The NCC wishes to reassure the over 21 million Etisalat subscribers that it will do all within its regulatory power to ensure that Etisalat.
“The Commission has taken proactive steps to cushion the impact of any takeover, this is without prejudice to the ongoing effort between Etisalat and the banks toward negotiated settlement.
“In view of the recent development, NCC wishes to reassure all stakeholders in the telecommunications sector in particular the subscribers on the Etisalat Network that the Commission will ensure that the integrity of Etisalat Network is not compromised.
“Accordingly, the Commission has drawn the attention of the banks to provisions of the Nigerian Communications Act (NCA) 2003 Section 38:
“Sub-section 1 – The grant of a license shall be personal to the licensee and the license shall not be operated by, assigned, sub licensed or transferred to another party unless the prior written approval of the commission has been granted;
“Sub-section 2 – A licensee shall at all times comply by the terms and condition of the license and the provision of this act and its subsidiary legislation.”
The regulator assured subscribers that they will continue to enjoy the services provided by Etisalat for as long as it takes the banks and the firm to resolve the issues.
From Etisalat to 9mobile
Emerging Markets Telecommunication Services Ltd. (EMTS), trading as Etisalat Nigeria later gave notice of the withdrawal of the brand name in the country while the board management, led by Hakeem Bello and Mathieu Wilshere stepped aside.
That development changed Etisalat to 9mobile and the subsequent appointment of Barclays Africa as advisors to the telco. Its CEO Boye Olusanya, said the brand name change will not affect the quality of services to customers, adding that all its commitment to CSR will remain. He also said the telco had its windows opened for new investors.
Reacting to the development, the Association of Telecoms Companies of Nigeria (ATCON) said the development would put more pressure on the new management to find an immediate buyer for the company, as EMTS is effectively left without a recognisable brand name known in the industry.
Its President, Olusola Teniola, spoke of the need to ensure that the services and products that EMTS delivers can replicate that unique experience.
Teniola said: “The Etisalat brand name holds significant intangible assets to EMTS and this allowed the current subscriber base to hold faith with the international experience and good will that the Emirates brought to Nigeria.
“It would be best for the new management to learn from the lessons already learnt from the various name changes that Econet went through to get to Airtel and ATCON seeks minimum impact on the subscribers if those lessons come to bear during this difficult period of transition for the company EMTS and the stakeholders in the industry, most especially the consumers.
“Proactive effective messaging from EMTS is key to the success of any brand name change and to remove the uncertainty that surrounds any identify change. From customer care right, through to technical support, it is important that infrastructure that supports the company is reliably run and in place to cope with the deluge of calls requesting information on ‘what next’ for the subscribers. Remember the ‘Customer is King’ in this situation,” Teniola said in an email message note to The Nation
Teniola who is the former CEO of IS Internet Services and now Client Partner for Detecon International, a subsidiary of Deutsch Telekom Group, Germany, said ATCON had predicted the development, adding that other carriers must learn one or two lessons.
He said: “We in ATCON predicted this outcome and need to see the precedent that this sets for the rest of the industry, in particular in the way and manner funds are used to deploy capital intensive infrastructure.
“The relationship with the banks and our members need to reflect the current reality in this harsh business environment and it is best for all stakeholders to work together to find a permanent solution to the ‘funding gap’ that exists in the manner and way the industry attracts FDI or utilises debt to realise its ambition.”
NCC’s Executive Vice Chairman Prof Danbatta said five firms had emerged as bidders for 9mobile. He listed the telcos as Globacom, Airtel, Smile Communications, Helios, and Teleology Holdings Limited.
Initially, about 16 firms expressed interest and filed bids with Barclays of Africa, 9mobile’s financial advisor. They include MTN, ntel, Virgin Mobile from the United Kingdom and Vodacom of South Africa. Others are BUA Group, Morning Side Capital Partners, Obot Etiebet & Co, Blackstone Private Equity, and Hamilton and George International Limited.
Dambatta said: “Five bidders have emerged for 9mobile. They have been allowed to access the data room of 9mobile in order to enable them access the financial situation of the company and subsequently make bids for the takeover of the company. But the takeover must be in a regulated manner.
“The CBN and NCC are supervising what is going on through an interim board jointly appointed by the NCC and CBN. We are going to do due diligence on the financial capacity of any potential bidder as well as the technical capacity.
“In the final analysis, we will like to see a 9mobile taken over by a bidder who has the financial and technical capacity to improve on the operations of the telco and add value in the delivery of qualitative telecom services in the country.”
The Federal High Court in Lagos nullified the appointment of an interim board for 9mobile. Justice Ibrahim Buba made the order based on an application by Spectrum Wireless Communication Ltd, which invested $35 million in 2009 in Emerging Markets Telecommunications Service (EMTS)/Etisalat, the fourth largest telecommunications service operator in Nigeria.
According to the certified copies of the judgment endorsed by Alokpesi CN, registrar, the judge ruled: “An order is hereby granted discharging the ex-parte order made by this court in this suit in favour of the respondent on the 3rd day of July 2017.
“The order made pursuant to motion ex-parte dated 3rd day of July 2017 was a nullity, made without jurisdiction and obtained by misrepresentation of facts. Same be and is hereby discharged and vacated as prayed.
“The motion for stay is struck out, having set aside the order. The respondent shall reverse all steps taken by it since the order was a nullity.”
The order nullified the appointment of Dr. Joseph Nnana of the CBN as chairman, Boye Olusanya as Managing Director, Mrs Funke Ighodaro as Chief Financial Officer, Seyi Bickersthet and Mr Ken Igbokwe on the EMTS board.
The nullification followed Justice Buba’s dismissal of a preliminary objection filed by United Capital Trustees Ltd in response to the application by Spectrum Wireless, a shareholder of EMTS.
United Capital comprises a consortium of local banks that provided funding for Etisalat.
Spectrum Wireless claimed that the order was obtained through the misrepresentation of facts that alienated its interests in the company.
The interim board of EMTS, which enjoyed the CBN and NCC support, received bids from the five bidders in its intended sale of the company, which would have been concluded by December 31, last year, but was moved to January 16.
Spectrum Wireless Communication’s lawyers warned that any institution or company who transacts business for the purpose of sale or acquisition of EMTS or 9mobile does so at his or her own risk.
Following the exit of Etisalat and its directors in June 2017 from EMTS, United Capital obtained the ex-parte order of July 3, 2017, to appoint a transitional board to superintend over the company’s affairs.
The transitional board rebranded the company 9mobile and announced a bid for its sale to interested investors. Concerned that United Capital’s action did not consider their stake in EMTS, other non-bank investors in EMTS, led by Spectrum Wireless, challenged in December last year, the ex-parte order granted United Capital.
Justice Buba nullified the order approved for the board’s appointment on the grounds that it was granted based on misrepresentation of facts.
Spectrum Wireless accused the NCC of not taking the interest of non-bank investors in the telco into consideration before deciding to put it on sale.
The firm which owns 17.5 per cent shares in the firm, said its interest and that of two others, were not taken care of in the process leading to offering the telco for sale.
Specifically, solicitors to Spectrum Wireless, J.A. Achimugu & Co and Dr R. O. Atabo & Co, all Kaduna based, lamented that its client invested $35 million in Etisalat since 2009, adding that no profit was declared.
Dr. Reuben Atabo of Dr. R O Atabo & Co, who spoke in a telephone interview, said several letters were written to the regulator with a view to notifying it of the need for all shareholders in the telco to be carried along, lamenting however that nothing was done.
According to Dr Atabo, his clients and about two others invested $100 million in Etisalat for building of infrastructure, lamenting however that when the telco went to raise loan from a consortium of local lenders, they (shareholders) were not informed.
Bid submission, result
Airtel pulled out of 9mobile bid. Globacom and Helios Investment Partners, LLP submitted bids but failed to attach any cash for the troubled telco to Barclays Africa.
Teleology Holdings Limited submitted a bid in excess of $500 million while Smile Telecoms Holdings quoted close to $300 million.
Effectively, only two companies made financial offers by the January 16 deadline. Going by the financial bid submitted by the two firms, Teleology Holdings Limited natural emerged the preferred bidder and Smile Telecoms the reserved bidder.
Airtel, Smile kick
Airtel’s U-turn came as a surprise to industry experts who had expected the company to push all the way through in order to become the largest operator in the land.
It would have automatically grown from being number three to number one by increasing its subscribers to 52 million for voice and 33.5 million for internet if it had emerged the preferred bidder.
Airtel allegedly decided to pull out because “many things are not too plain with the entire process”.
“Airtel is not interested in 9mobile because it sees little value in the company,” a source revealed.
Another source said the Indian carrier did not have sufficient information to make an informed bid.
“Airtel believes too many things are hidden about the health of 9mobile, and that it is too risky for anyone to buy the company. Things became compounded with the court case by Spectrum Wireless. Remember the Strive Masiyiwa case over the ownership of Econet which hurt the company for a long time,” an insider said.
Spectrum Wireless, a shareholder of Emerging Markets Telecommunications Service (EMTS) — which owns the 9mobile licence — went to court against United Capital Trustees Limited — representatives of the debtors — in order to stop the constitution of an interim board for 9mobile after the take-over in July 2017.
Although it lost the case, the Federal High Court later nullified the ex parte order, and United Securities has now gone on appeal.
Smile Telecoms Holdings Limited decried the tardy manner in which Barclays Africa handled the sale of 9mobile. It called for a process review to uphold transparency. Smile wrote a letter addressed to Barclays Africa dated February 21, 2018 and signed by Templars; the company’s solicitors.
Smile expressed surprise and disappointment at the manner in which the selection process for the Preferred Bidder and Reserve Bidder was conducted. Of particular concern, to Smile, was the fact that the selection of the preferred bidder was announced before the stated deadline of February 26, 2018 as set out in the process letter.
The company urged Barclays, to as a matter of fairness and urgency, provide a practicable, with verifiable (and preferably third-party authenticated) proof that the party that has been selected as the preferred bidder has indeed satisfied all the conditions precedent to that selection.
However, in its reply of February 26, Barclays Africa promised to “be in touch with Smile to discuss any updates on the transaction, to the extent considered necessary”. It expressed gratitude for Smile’s continued interest in the transaction but noted that its clients exercised their rights at their sole discretion to pursue an alternative path to completion of the transaction.
Barclays restated its willingness to explore transaction completion with Smile should the pending process not reach a satisfactory conclusion.
Smile argued that Barclays Africa’s letter evaded the critical issues of due process and eligibility of the announced preferred bidder, wondering if the preferred bidder was able to meet the laid down requirements for the transactions that required it to reach agreement on any required financial accommodations with the syndicate lenders and the trade creditors. The requirement also entails the preferred bidder to have firm, unconditional and committed funding for any cash payments and to provide a binding offer that is unconditional, excluding the formal licence approvals.
It’s not yet over
It would be recalled that the NCC has reassured that only investors with the required technical expertise and financial muscle will buy 9mobile.
Ojobo said in a statement that the Commission will ensure that all relevant statutory and regulatory processes are duly complied with in the process leading up to the emergence of new owners for the company.
NCC’s intervention came on the heels of news that Teleology Holding has emerged the preferred bidder for 9mobile. The announcement was greeted with protests in some quarters. A non-governmental organisation, Business Renaissance Group (BRG), protested against the process, accusing Barclays Africa of sending the letter to Teleology in a hasty and preemptive manner.
The group stated that Barclays Africa jumped the gun in announcing a preferred bidder. It noted that in a meeting held with the interested bidders on January 26, 2018, Barclays gave the two finalists in the bid process: Teleology Holdings and Smile Telecoms Holdings the opportunity to increase their bid for 9mobile within 30 days which brought the deadline date to February 26, 2018.
The group wondered why Barclays could not wait till the agreed date before its preemptive announcement of a winner. Alleging bias against Barclays in the handling of the 9mobile sale, BRG recalled that Barclays had earlier affirmed that any preferred bidder on selection will need to sign a Sales Purchase Agreement (SPA) immediately and will have to instantly pay a non-refundable deposit of $50 million.
It decried a situation where Barclays has now given its preferred bidder 21 working days to pay the non-refundable fee of $50 million. The group further underscored its allegation of a less than transparent handling of the entire bid process by Barclays Africa by recalling that some of the earlier entrants, among them two major GSM network operators, had opted out of the process, alluding to lack of transparency.
It also claimed that at least, two major vendors of 9mobile rejected the financial offers of the preferred bidder and had no confidence in the weak and unrealistic business plan it presented.
The group wondered how such a bidder with questionable business plan would be able to sustain and improve the operations of 9mobile. BRG contended that the precipitated announcement by Barclays is indicative that the preferred bidder did not satisfy any of the precedent conditions.