Volume 2, Issue 16

This week on your Fortune&Class Magazine;

FIRS SEALS ADENUGA’S OIL COMPANIES OVER N89 BILLION TAX EVASION
It would sound rather ironical that the totality of the Nigerian state has been compelled to reconsider the structure of its national budget which has a built-in 500 million dollar deficit financing plan, about 30 per cent of the national budget, because of the certain realization that it could not possibly raise the dollar sum in the international finance market as planned, yet, two oil companies owned by Otunba Mike Adenuga Jr. are reported to be indebted to the Federal Government, through various forms of taxes, a sum calculated at 610.6million dollar (N89,147,600,000). …

STOCK MARKET REBOUND IS SUSPICIOUS -Experts
For some more discerning investors and analysts, the pillaging of the Nigerian stock market last Thursday, 14 May 2009 was inevitable. The Nigerian stock market had witnessed a sudden upward trending, albeit unexpectedly, since March, but showing consistency over the last two weeks.

Analysts at Meristem Securities capture the character of the final days of the bull in the market, last week, as prices of stocks generally hugged the sky when they noted in their stock market daily report of Wednesday, 13 May that: …

WHY THE PRESIDENCY WANTS TRANSCORP MD, TOM ISEGHOHI, PROSECUTED
The detention and questioning first by the State Securities Services and later by officials of the Economic and Financial Crimes Commission, of Mr. Tom Iseghohi, Group Managing Director of Transcorp and two other officials of Transcorp Plc, Mohammed Buba, Company Secretary, and the Head of Shared Services, Mike Okoli may not be unconnected with complains emanating from the presidency over the management of the nation’s former sole national carrier, NITEL, a now moribund company the Federal Government desperate wants vended off to a more competent and qualified core investor, away from the majority holding of Transcorp. …

RACE FOR NSE DG HOTS UP
There are subterranean maneouvres and scheming involving some top management staffer of the Nigerian Stock Exchange (NSE) following the expected exit of Professor (Mrs.) Ndi-Okereke-Onyiuke, the Group Chief Executive Officer/ Director General (GCEO/DG) of the NSE in year 2010, according to an investigation conducted by Proshare. …

HEAD HUNTERS GO AFTER ACCESS BANK SHARES
The recent rally in the Nigerian stock market was an enough signal to put most investors to place their stock brokers on the alert mandate, once price of particular stocks reached a given threshold. These, investors, like the generality of the market investors, had watched helplessly their money locked in to shares they bought in the momentous period of the bulls’ domination of the Nigerian Stock Exchange, except that they are willing to sell now to discount their losses because of their huge holdings. …

NIGERIAN BREWERIES STILL THE STOCK OF CHOICE
Analysts at Proshare NI have submitted that only two stocks have attained 2009 highs and these are Nigerian Breweries and Benue Cement Company. In an analysis as contained in Proshare NI market review, the analysts observed that between the beginning of the market rally on March 31, 2009 and May 7, 2009, the Nigerian Breweries stock had gained N16.75K, a gain of 46.85 per cent. The analysts opined that the stock must have picked up possibly due to less number of shares outstanding of 7.56billion which trims down the desire by most investors to dump shares.

OFFSHORE FINANCING: HOW TO SECURE FUNDING FOR YOUR BUSINESS PROJECTS

Senior Project Manager

FinancialBridge provides various offshore financing options for business projects, it determines, after proposal review, the appropriate funding body that is best suited for the proposed project.

With the USA Ex-Im Bank Programme, Financialbridge will package and procure 85% of the U.S. cost content of the Project as Loan from one of its associated U.S. Lenders that will utilize the Credit Guarantee Programme of U.S. Ex-Im Bank and the Promoter’ s Corporate Guarantee to provide related U.S. Loan.

The promoter of the project will also be required to provide the remaining 15% of the U.S. cost content as Equity Contribution as well as satisfy local in-country costs requirements, including obtaining local Bank Guarantee to support related Loan Facility.

The U.S. Loan will have medium term tenure of over 5 – 7 years, at an interest rate of 2.0% above Six Months Floating LIBOR (London Interbank Offered Rate).

To start -up the process of obtaining required Funding, the promoter is required to retain the services of Financialbridge and pay negotiable Retainer/Business Development Fee to instrument and procure the U.S. Funds. Following receipt of the payment, Financialbridge will develop a Bankable Business Plan that will satisfy U.S. Export Financial Market requirements and procure the Project Loan.

The Fee will further cover service coordination of Project Loan Packaging and Procurement that will involve the Borrower and the U.S. Lender. The Engagement Fee is refundable in full if the Loan is not procured after the promoters satisfy all the statutory U.S. Financial Market requirements, as outlined under the scope of responsibilities of the business promoters.

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.

Once the loan is approved, Financialbridge will charge a Loan Procurement Fee of 5-7% of Loan amount aid by the U.S. Lender and added to the cost of the Project.

Scope of Responsibilities of Financialbridge and the Promoter/Borrower:

1. Financialbridge shall be responsible in carrying out tasks that will result in the successful procurement of U.S. Loan for the implementation of the Project in Nigeria, including:

1.1 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 promoter Company for approval and possible input before product ion of final Document.

1.2 Turnkey Packaging, Qualification, Documentation, Sourcing and Procurement of Project Loan from a U.S. Lender, utilizing Ex-Im Bank Comprehensive Guarantee.

1.3 Processing, 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 promoters.

1.4 If required, Financialbridge can also be engaged to Package and Instrument Private Placement of Shares of Common Stock of promoters’ 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 / In-Country Costs as well as required Equity Contribution, etc.

2. Promoter / Borrower: The promoter/borrower shall be responsible for the following within the requirements for successful Loan Procurement, including:

2.1 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 requirements.

2.2 Securing all required Permits and Licenses from Nigerian Regulatory Authorities

2.3 Submission of Three Years Audited Financial Statements of the Nigerian Bank as certified by a renowned Accounting Firm.

2.4 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.

2.5 Funding of all Professional Fees, including U.S. Lender’s and Ex-Im Bank Project Underwriting and Loan Closing Fees.

2.6 Payment of Retainer/ Business Development Fee to Financialbridge for Loan Packaging, Qualification, Processing, and Procurement, including development of Bankable Business Plan to satisfy Lenders requirement for related Loan.

Exclusions and Responsibilities of Project Promoters:

1. Local Taxes, Custom Duties and VAT (into the destination country)

2. Port Clearing of Plants, Machinery & Equipment and Inland Transportation to Site

3. Construction Authorizations and Permits

4. Connections to the Local Networks (Water, Electricity, etc.)

5. Visa Processing and In-country Room & Board for Expatriate Engineers in the duration of Construction & Erection.

6. Security for the supplied equipment at site and U.S. Expatriates

Geofluid Private Placement: The Scandal In The Making

MD, Oceanic Bank Plc

A big row is in the making over the private placement of Geofluid, a small-time, highly indebted oil company that was dusted off and burnished for presentation to the public by Oceanic Bank which packaged and acted as one of the issuers to the private placement exercise of the company.

Recall that Fortune&Class Weekly had raised the alarm over the magnitude of indebtedness of the company and had highlighted the apparent fact that the private placement was, in fact, packaged and issued by Oceanic Bank to recover debt owed it by Geofluid.

On the whole, it was a bad buy for many investors that were deceived into buying into the company through the private placement. But now, some more sinister allegation of financial engineering are being raised by concerned industry experts and investors in the placement. They claimed investigation is ongoing.

Globe-Re Returns Money For Unalloted Private Placement Shares

After series of denials on the possibility of returning money to investors who took part in the company’s 2006 Private Placement (PP), there are strong indications that Globe-Reinsurance has commenced returning money for un-allotted shares in its private placement.

However, market trend watchers said that the commencement of returned money to investors may trigger some more confusion in the market because many investors that had bought into the private placement through third parties might not even get their money back because the third parties through whom they bought the Globe-Re Private Placement did not file for purchase of the shares on behalf of the investors.

Most of the guilty third party go-between had held down the anxiety of the investors on the excuse that the reinsurance had not concluded its private placement allotment. For the other investors that may be fortunate to be allotted shares, their investment had been locked down in the company for upward of three years without dividend, neither the extreme possibility of capital appreciation because the shares are yet to be listed on the Daily Official List of the Exchange.

Globe-Re in 2006 sought to raise fresh funds by way of placement and offered to investors six billion ordinary shares of 50 kobo each at 85 kobo per share. Afribank Capital Markets Limited was joint issuing house to the placement.

Stock brokers turn to feasibility studies writers to survive

For stockbrokers in Lagos, the commercial capital of Nigeria, creativity is the watch word as the dependence on commission earning from transaction consummated on behalf of clients can’t pay the bills. Obviously, clients-investors are not in a hurry to approach the stock market in this perilous time. As most stockbroking firms downsize to remain afloat, some more creative have had to diversify source of income by engaging in financial advisory service to clients.

Many top notch stock broking houses are now engaged with writing feasibility studies and generally counseling clients on how to put their business on strong financial standing.

Capital market followers said time has indeed change because when the market was boisterously bullish, the top level brokerage firms that had descended to the deep to writing feasibility studies wouldn’t have given it a thought, especially, when big budgets public offerings and private placement were the order of the day.

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.