HOW TRANSCORP CAN RAISE $750M FOR NITEL 24072006

The recent announcement by the Bureau of Public Enterprises that TRANSCORP emerged the preferred bidder for the state owned octopus of the telecommunication industry was greeted with mixed reactions in the Nigerian media.  While some were satisfied that the government’s acceptance of the offer of $750m for 75% of NITEL’s shares was the best possible, others insist that the value of the vast spread of NITEL’s assets throughout the length and breadth of this country is second only to the existing assets of the Power Holding Company of Nigeria and therefore believe that $750m does not reflect a realistic valuation of NITEL.  Be that as it may, another section of public opinion suggests that we should be consoled that such a valuable public corporation with significant implications for national communication and security has been retained in the hands of fellow Nigerians.

The inability, however, of TRANSCORP to pay the first instalment of $500 before the BPE deadline did not come as a surprise to some skeptics who rightly perceived that, this administration’s declared support, notwithstanding, TRANSCORP’s pocket may not be as deep as generally touted, especially with the already huge commitments made for the purchase of Nicon Noga Hilton and other equally capital intensive ventures including crude oil extraction!  That TRANSCORP only made a down payment of $70m with a request for six months extension of the deadline is no longer news.  Nonetheless, some Nigerians were a bit surprised at the BPE’s seemingly tacit approval of TRANSCORP’s request; especially when the loss of $100m by IIL for a similar breach in a bid for the nation’s third major carrier is still fresh in the memory of corporate Nigeria.

But it is clear that with the antecedent of TRANSCORP as a child midwived by the current administration in a giddy relationship with corporate Nigeria, it would have been inconceivable that BPE would deal an unfriendly blow on a favourite cousin!  The above notwithstanding, the question that remains to be answered is where will TRANSCORP find almost $500m to complete the first installment of its bid for NITEL.  Interestingly, TRANSCORP’s bid was over 100% the value of the bid by its nearest competitors, some of whom, such as ORASCOM Telecom, are already reputable telecom service operators internationally; TRANSCORP on the other hand is a neophyte in the telecom business; yet, it posted a bid that totally dwarfed more experienced competitors!  It would be most unlikely that TRANSCORP would depend on the limited capacity of the Nigerian capital market to raise $500m, it is more probable that TRANSCORP may have to look overseas for funding.  In this event, foreign capital sources may wonder how a novice, TRANSCORP could make an attractive return on its bid of $750m when the same investment had been valued at less than $400m by more savvy and telecom oriented corporations!  Foreign investors may also be rightly wary that the genteel relationship between TRANSCORP and the current administration may not subsist beyond 2007, if a less supportive or less friendly government comes to power.

These critical considerations may have been responsible for TRANSCORP’s inability to pay the first installment of its bid.  So, if the capacity in the Nigeria market and lack of confidence from overseas investors threaten TRANSCORP dream of owning NITEL, what other avenue can TRANSCORP pursue to raise the required money?  The only option available would be for TRANSCORP to direct its attention to potential opportunities back home; for example, fortunately, the CBN has seen the ‘wisdom’ in sharing a part of our embarrassingly huge reserves to Nigerian banks for ‘better’ management.  As at last count, about a dozen of the recently recaptilised banks have shown interest in this venture and have taken the first step of teaming up with global financial houses as technical partners!  Never mind the cynics who point to the failures of countless technical partnerships between Nigerians and foreigners!

Anyway, it only requires two of our new banks to qualify for the priviledge of managing $500 of our nation’s reserves to provide a ready pool of at least $1bn from which TRANSCORP could conveniently source its payment shortfall; fortunately, corporate Nigeria including the commanding heights of the Nigeria stock market, the banks and the current administration are favourably disposed to Nigerian ownership of NITEL under a transnational mega corporation; so, the process of actualizing this objective can be facilitated by the common vision.  In this event, it may not be unlikely for the CBN to lower the ‘arbitrary’ bar of a requirement for a capital base of up to $500m before a Nigerian bank can indulge in our national reserves management.  TRANSCORP can own NITEL and indeed make further acquisitions nationally and internationally if only half of those banks who have contracted technical partners succeed in their quest for reserves management before the end of this year!

But let us consider for one moment that our monetary authorities inadvertently fund the purchase of NITEL with our own reserves.  Nigerians may see this as a folly, akin to robbing your pocket to transfer the ownership of your own property!  But, let us in a zeal of patriotic fervour pardon such recklessness, and consider for a moment that the fears of the other respectable bidders for NITEL are actually well founded; that is, the telecom giant was not really worth more than $400m in the first place, and TRANSCORP’s inexperience in telecoms business constitutes an albatross!  The product of this scenario would be a huge loss, particularly to the Nigerian people whose wealth would have been frittered away without any appreciable impact on their welfare.  God forbid that, in future, the government may ever have to pump in more scarce reserves to salvage TRANSCORP in an attempt to rescue government’s heavy exposure!  If we ever reach this bridge, we would have reinvented the drain pipes that privatization sought to block, and we would have come full cycle with a lot of hustle and bustle, but no positive motion towards creating an efficient economic framework for the emancipation of our people from the clutches of poverty.

If, however, the TRANSCORP bid eventually falls through, then, what becomes of the national monument, NITEL?  Well, some professional estate surveyors and valuers have suggested that we should lose no sleep over this as realistic valuation for NITEL’s real estate assets, such as, the NITEL Towers on Marina and various other official and residential properties throughout the country should raise at least another $500m.  In addition, over a billion dollars have been gulped up by NITEL in the last seven years to upgrade one set of equipment or the other; these equipment should fetch at least $200m while a fresh license for any new prospective entrant into the lucrative telecom market should fetch the minimum sum of $250m paid by MTN and Econet four years ago, when the telecom market was deregulated.  Furthermore, a debt recovery drive may also yield up to N30bn.  This alternative approach may be more rewarding than one which implies giving TRANSCORP a part of our reserves in order for them to take ownership of NITEL.