Investors Accuse Stanbic-IBTC, Chapel Hill Of Fraud In Starcom Private Placement

A row is in the brew in the community of investors, especially, among those that bought into the private placement of Starcomms Plc last year. At the centre of the uproar are two issuing houses to the shares of Starcomms Plc, Chapel Hill Denham and Stanbic-IBTC.

Mr. Adebayo, one of the investors that bought the private placement of Starcomms Plc observed in a fit of frustration that it is very evident that “Starcomms Plc Private Placement” has become the epitome of “fraud.”

“The Placement of 4.95 billion shares, which opened and closed on 3rd June 2008 at a price of N13:00 appeared so attractive to investors at that time as it was over-subscribed,” Adebayo recalled.

Apparently angered at the down-turn of the investment, Adebayo explained that: “The projection in the placement memorandum says that the company will declare a loss of N197 million at the end of 2008 financial year end. Unfortunately, the company declared a loss after tax of N1.014 billion in the second quarter and N2.149 billion in the just released third quarter result.”

Starcomms Plc was listed at N13.56 on Monday, 14th July, 2008, between then and now, the price of the share had slid to a low of N3.86.

“In fact, the price dropped consistently to N7.46 less than two months after listing,” Adebayo opined. “The question to ask now is during that period, who was selling since most investors that bought shares during the private placement still had certificates that were unverified. Could it have been the original owners dumping on new investors? Can someone please explain why the variance between the forecast and the actual result declared is so staggering? Was money being laundered? What happened to the proceeds of the placement? How much expansion has the company embarked upon since the placement?” Adebayo queried.

Another investor frontally accused the two issuing houses to Starcomms placement, StanbicIBTC and Chapel Hill Denham, a capital market operator that was recently selected as one of the market makers for the Nigerian Stock Exchange. Concerned investors argued that the two issuing houses lent their brand names to be exploited by Starcomms to defraud them.

“The placement was actually successful because Starcomms Plc leveraged on the good name and credibility of Stanbic IBTC Bank Plc and Chapel Hill Advisory Partners. But looking at the whole situation closely, it seems there is more to what we can see. It’s so obvious that Starcomms’ goal from the word go was to defraud the public,” an investor submitted.

“Another question begging for an answer is the role of the two issuing houses in this? Or did Lababidi/Starcomms Plc (Chief Maan Labadidi is the Chairman of the board of Starcomms Plc) act alone?” Adebayo asked. While trying to establish a connection and possible connivance to defraud investors, Adebayo questioned the appointment of Mr. Wale Edun, Chairman of the board of Chapel Hill as a non-Executive Director of Starcommc Plc.

“I want to question the connection between the sudden appointment of the Chairman of Chapel Hill Advisory (Mr. Wale Edun) as a non-Executive Director of Starcomms Plc? Have the Securities and Exchange Commission (SEC) and the Nigerian Stock Exchange (NSE) been asking any questions? How have the professional parties to the placement been able to comply with post-listing compliance requirements? Why are the regulatory bodies keeping mute about this great injustice to investors?” Adebayo queried.

Giving further revelations of the intentions of the Chairman of Starcomms to approach the capital market to raise funds for another company that he has interest in, Adebayo said:

“We hear that the same Lababidi now wants to bring another company to the market (Supreme Flourmill Ltd); this only shows that this individual thinks we are all fools in Nigeria. Please beware of this offer,” Adebayo warned other investors.

Commenting on what investment in Starcomms had turned to, Mr. Ajisafe, another investor opined:

“This is a serious matter and I have decided to sensitise everyone on my list thereto. This is, no doubt, a huge fraud and I am of the opinion that the SEC and NSE should stand indicted in the whole affair! Also, the two issuing houses, I believe, have an explanation to make to unsuspecting investors because investors relied on the strength of their analyses to buy the Starcomms offer. This is shameful and I submit that the matter be investigated and all those found to be culpable be treated in line with the IST sanctions. They are no better than Madoff! Moreover, investors should be wary of issues by the concerned issuing houses (Chapel Hill and StanbicIBTC),” Ajisafe submitted.

Another investor said of the suspicion of collaboration to rip investors on the Starcomms’ private placement.

“It is amazing what our corporate gurus are doing to stay on top of the ladder, gone were the days when our industrialists gave to charity, now our so called industrialists have board meetings and make strategies on how to use their companies to defraud the masses. We are all talking about Madoff but oblivious to the presence of individuals perpetrating worse atrocities right here in Nigeria. We all know that hedge funds are not regulated, and that probably explains why they are able to get away with all they do. How do we justify or indeed explain the flagrant act of fraud against the public in a regulated market? Starcomms came into the market to raise capital, many unsuspecting investors rushed at it, expecting high returns on their investments; it is a pity that it is now a different story entirely. It is obvious that being a politician is not the only way to “rush” up the ladder of wealth; the capital market is an untapped goldmine to fraudulently enrich people who are influential in the business and financial sectors, thanks to our Indian “friend.”

In a statement made available to Fortune&Class Weekly by officials of Chapel Hill Denham, one of the issuing houses to the Starcomms private placement, the issuing house noted that “several investors never read the PPM or all the documentation made available at the time of the placement and many bought through brokers and friends, who were among those invited and never actually saw any documentation and never understood that it was sold as a growth stock, which would make a loss in 2008 (albeit, a smaller loss than we expect to see for 2008), a profit in 2009 and pay dividend in 2010.”

Chapel Hill Denham further asserted in the statement that, “What essentially has happened is that a completely unforeseen heavy subsidy led competition by Visafone and Telkom Multilinks, has meant Starcomms spending about N2 billion more on subsidies than was projected. Essentially, a line with a handset costs about $45 each and it was being sold at N10 each. Starcomms board and management felt that it did not yet have the scale from a subscriber perspective at 1.2million gross subscribers, to stay out of this battle for subscribers.”

The statement further explained that Starcomms had over the years to over 2.5 million gross subscribers, higher than the business plan but at a hefty cost.

“This subscriber’s base will be beneficial this year and beyond, as you can imagine that over two million subscribers spending about $15 per month should generate revenue of about $350 million in 2009. This is not a business in distress by any circumstances,” the Chapel Hill Denham statement observed.

The management of Chapel Hill Denham also explained that contrary to the rumour being spread, the founders, the Lababidis actually increased their holding during the private placement, spending about $17million directly and indirectly, through their other businesses.

“The only shareholders who sold during the placement were the two private equity firms, Actis and ECP, for whom the funds they invested from had come to the end of their life and had to return the money to their investors and partners. All of these were disclosed to investors in the private placement,” the statement noted.

No official of Stanbic-IBTC was available for comment.

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FINANCIALBRIDGE: HOW TO DO BUSINESS WITH THE AMERICAN INVESTMENT COMPANY THAT FACILITATES OFFSHORE FUNDING FOR NIGERIAN BUSINESSES

When Patrick Fournie, Senior Advisor with FinancialBridge, Inc. made his presentation on the “Private Ownership of Modular Refineries in Nigeria: The New Trend in Building Petroleum Refining Capacity: The Financialbridge Experience” at a seminar organized by the Energy Industry Development Initiative at the Federal Palace Hotel, Victoria Island, Lagos State, this past Tuesday, 11 November, 2008, seminar participants listened with rapt attention.

Fournie presentation, was for the Nigerian and other foreign participants at the seminar, a revelation of a new vista in financing strategies on the pivot of offshore financing, he informed the seminar of how FinancialBridge is facilitating funding for a Pharmaceutical Project in Abuja, at a cost of $12.2 million and an aluminum roofing sheet & allied project at Onna in Akwa Ibom State at a cost of $6.6million. FinancialBridge, he said, is also involved in funding for an amusement park project at Isheri, Ogun State, at a projected cost of $22.3 Million, a pit quarry mining project at Oyebiyi, Oyo State at a projected cost of $7.5 million and a 5-Star luxury hotel in Abuja at a projected cost of $55.8 million.

Other projects FinancialBridge had been engaged to facilitate funding for by Nigerian entrepreneurs are the phase one of the 12,000Barrels per day modular refinery project at Eket in Akwa Ibom State at a cost of $43.7 million and the 12,000Barrels Per Day modular refinery project at Kolo Creek in Yenagoa, Bayelsa State at a projected cost of $121.3 million. A $197.5 million 18,000Barrels Per Day modular refinery project in Edo State is also one of the projects FinancialBridge is facilitating offshore funding for.

Fournie who flew into Nigeria to make further revealed how his company had structured funding and project implementation procedures for the soon to be streamed 12,000 Barrels Per Day Amakpe Refinery Project at Ikot Usekong – Eket in Akwa Ibom State and the Rehoboth Refinery, also a 12,000 Barrels Per Day Refinery Project in Yenagoa, Bayelsa State.

Fournie, who, on behalf of Financialbridge, signed a Memorandum of Understanding (MoU) appointing Energy Industry Development Initiative as its representative in Nigeria, explained that FinancialBridge is an export finance and business credit consulting firm:

“We work with U.S. and international financial institutions to provide innovative funding solutions to private companies and government agencies, including: export trade finance, project finance, public sector financing and export working capital. We are also involved in equity financing and facilitation of bridging loans” Fournie said.

“We cooperate with Project Implementation and Management Companies in ensuring effective utilization of procured funds for successful planning and execution of related projects and trade transactions.”

Highlighting its primary sources of export funding in the United States financial market, Fournie said his company’s sources include: Export-Import Bank of the United States (U.S. Ex-Im), Overseas Private Investment Corporation (OPIC) and the Export Finance Banks and Credit Insurance Companies, among others:

“Ex-Im Bank is the official Export-Credit Agency of the United States that helps create and maintain U.S. jobs by financing the sale of U.S. Exports, primarily to emerging markets throughout the world. Ex-Im Bank provides Loan Guarantees, Export-Credit Insurance and Direct Loans, in fiscal year 2007, Ex-Im Bank authorized $12.6 billion in financing to support an estimated $16 billion of U.S. exports worldwide.” Fournie said.

Perhaps, of importance to Nigerian entrepreneurs, is the revelation by Fournie that the Ex- Im Bank has approved a $1.0 billion facility to guarantee Nigerian Projects (of which $800 million is still available) despite the global financial melt down.

Explaining the process for securing offshore funding for projects in Nigeria, Fournie said:

“Under the Ex-Im Bank Guarantee Program, the Promoter is required to provide Statutory Equity Contribution of 15% of U.S. Cost Content, while the U.S. Lender funds 85% of the U.S. Cost Content utilizing the Comprehensive Credit Guarantee of Ex-Im Bank. The Project Promoter is further required to provide Local Bank Guarantee to support the 85% portion of the U.S. Loan as well as finance local In-Country Costs requirements within the overall Project Cost.The U.S. Ex-Im Guaranteed Loans have Medium Term Tenure of 5 to 7 years at Interest Rates of +/- 2% above Six Months Floating LIBOR (London Interbank Offered Rate).

Some of the projects funding prospects of FinancialBridge include Oil and Gas (Modular Oil Refineries, Gas Gathering & Processing Plants, Downstream Petrochemical Projects, Pipelines, etc.), Energy (Gas Turbines and Diesel Powered Plants), Communications (Wireless VSAT Network VoIP Telephone, Fax, High Speed Broadband Internet Systems, Cable TV, etc.) and Solid Mineral (Quarrying & Processing).

Other funding prospects are: Manufacturing and Assembly (Small and Medium Scale Plants), Construction (Pre-engineered Buildings & Facilities, Stadiums & Arenas, Industrial Parks, etc.) Agro-Business (Farming & Food Processing), Medical (Pharmaceutical Projects, Supplies & Clinics), Tourism (Amusement Parks, Hotels/Resorts, etc) and Aviation (Used & New Passenger & Cargo Aircrafts, Helicopters, Airport Development & Expansion, Avionics & Spare Parts, etc.)

Highlighting the milestones already attained with the 12,000 Barrels Per Day (BPD) Amakpe Refinery as a case study, Fournie said:

“The Amakpe Refinery is being implemented in two phases, with Phase 1 – 6000BPD Refinery Plant originally estimated to cost about $36.5 million and now revised to cost $43.7 million, including Escalation, and revised Field Erection Costs. Construction of 12KM Dual Steel Pipeline connecting Exxon/Mobile QIT and Amakpe Tank Farm is estimated at $10 million of Additional Cost. The Project is expected to start production by October 2009. Out of the current revised Project cost of $43.7 million, $26.2 million has been expended while $17.5 million is outstanding to complete full funding of the Project.

“UPS Capital/Ex-Im Bank Loan of $10.3 milion is being disbursed to Ventech, based on P&M Construction Progress Payment while Amakpe Refinery has fully paid required statutory Equity Contribution and continues to pay the Counterpart Funds. Akwa Ibom State Government Investment of $8.5 million has also been applied to the Project

“As at June 27, 2008, Ventech achieved 50% Mechanical Completion of the Refinery Plants and Machinery Fabrication, which was certified by visiting representatives of the Department of Petroleum Resources, including Mr. M.D.B. Ladan-Head Downstream, Mr. O.A. Adeleke- Assistant Director, Dr. D.M.E. Eradiri- Chief Environmental Officer, Mr. Oyedele Sangobowale and Mr. Hussaini Basaka-Site Representatives. Based on this development, Amakpe Refinery has qualified to receive $1.2million Security Deposit earlier paid to DPR as a requirement for revalidation of related Refinery Construction License.

“Sterling Bank has approved additional $9.3 million Loan Facility for the Project. Amakpe Refinery is planning to issue 15,000,000 Shares of Common Stock of the Company for sale to Private Investors. The Private Placement is being packaged by Financialbridge and Sterling Bank for issuance by Sterling Capital Markets (Issuing House).

To start -up the process of obtaining required funding, a Company is required to retain the services of Financialbridge which will develop a Bankable Business Plan that will satisfy U.S. Export Financial Market requirements and procure the Project Loan.

The retainership will further cover service coordination of Project Loan Packaging and Procurement that will involve the Borrower and the U.S. Lender. The U.S. Lender will underwrite the submitted statutory documentation leading to Loan approval, following which the Lender will request the U.S. Ex-Im Bank for issuance of Political Risk and Medium-Term Insurance/ Comprehensive Credit Guarantee before disbursement of related Loan. The process of underwriting the Loan through approval and disbursement could be concluded within 45-90 days after the U.S. Lender receives the complete statutory documentation as outlined.

Financialbridge be responsible in carrying out tasks that will result in the successful procurement of U.S. Loan for the implementation of the project which include: Conduct of Feasibility Study and preparation of Bankable Business Plan that will satisfy U.S. Export Financial Market requirements. The Business Plan will be concluded within 30-45 days from receipt of Engagement Fee, Data from Market Research as well as Borrowers information. The draft of the Business Plan will be forwarded to the Company for approval and possible input before production of final Document.

FinancialBridge also processes Due Diligence, Approval and Disbursement of Project Loan within 45-90 days of the U.S. Financial Institutions receiving and underwriting complete statutory documentation from the Nigerian company.

If required, Financialbridge can also be engaged to Package and Instrument Private Placement of Shares of Common Stock of the company to raise additional funds through Private Equity Investment, utilizing a local Nigerian Bank as Issuing House.

The Funds raised through the Private Placement could be applied to fund Local Project Site Development and In-Country Costs as well as required Equity Contribution, etc.

The Nigerian company shall be responsible for the following within the requirements for successful Loan Procurement, including: Obtaining Nigerian Bank Guarantee for 85% or 75% of the total U.S. Loan amount to fund the Project, depending on the Ex-Im Bank or OPIC requirement.

Securing all required Permits and Licenses from Nigerian Regulatory Authorities, submission of three years audited financial statements of the Nigerian bank as certified by a renowned accounting firm. Provision of Equity Contribution of 15% of total U.S. costs content within the overall Project cost for U.S. Ex-Im Bank Guaranteed Loan to be added to 85% of total U.S. cost content as Loan, or 25% as statutory Equity contribution of total Project

Confirming Energy Industry Development Initiative’s (EIDI) relationship with FinancialBridge, the organisation’s Chief Executive Officer, Mr. Tom Obaseki said FinancialBridge has already shown interest in facilitating funding for some project ideas it had forwarded to FinancialBridge.

“As we speak, we have forwarded project proposals for the establishment of 5-7 MMSCFD Modular Gas Gathering, LPG and Lean Gas Production Plant in Nigeria, the establishment of Integrated 55MW Power Plant, Natural Gas Gathering and LPG Processing Project in Nigeria and for Development of Pre-engineered Medical Clinic & Diagnostic Centers, Pharmaceutical Project and Customized Medical Trailers & Boat Clinics, complete with Outreach Medical Technicians Training Support.” Obaseki explained.