Today, potential investors who qualified for the next stage of the bid process for 9mobile telecommunication, formerly Etisalat, have to tender a bank guarantee (or bond) of at least US$100 million as part of proof of their financial capacity to buy the company. The 9mobile deal is expected to be the biggest acquisition deal of 2017, if the December 31 deadline for conclusion is met.
The stakes are high and could change the dynamics of the competition in the highly competitive telecommunication industry, depending on which investors end up buying Nigeria’s fourth largest telecoms company which has about 20 million subscribers.
To ensure that only those who can compete get their hands on 9mobile, bidders are expected to provide detailed and verifiable evidence, showing technical capacity to operate the 9mobile network which could be through attestation that they currently run a telecom network, or that a member of the consortium currently runs, or previously ran a telecom network.
This is one of the six critical next steps agreed to by the representatives of the consortium of banks to 9mobile, after their meeting with Umar Danbatta, Executive Vice Chairman of the Nigerian Communications Commission (NCC) and Godwin Emefiele, governor of the Central Bank of Nigeria (CBN) on November 14, 2017. The steps are to ensure a transparent process, towards meeting the December, 2017 deadline for the sale of 9mobile, BusinessDay authoritatively gathered.
The meeting had been called after the CBN and the NCC expressed concern about the way Barclays was handling the sale of 9mobile.
At the meeting, representatives of banks that lent money to 9mobile agreed to direct Barclays Africa, the financial advisers to the deal, to follow some critical next steps they outlined that would ensure a transparent process towards meeting the stipulated end December, 2017 deadline for 9mobile sale and clear any perception of manipulation of the process towards a predetermined conclusion.
Barclays is now expected to invite all bidders that meet the financial and technical requirements to present and discuss their financial capacity, technical abilities, and strategic strengths to a team comprising representatives from the 9mobile board, NCC, CBN and the consortium of lenders on November 27, 2017.
According to a document on the outcomes of the meeting seen by BusinessDay, Barclays is also expected to determine by November 30, 2017, at most three bidders who were successful in the financial and technical bids to then conduct due diligence on 9mobile.
The adviser is after then expected to invite binding offers from bidders on or before December 20, 2017.
Following the meeting, ten representatives of the consortium of banks to 9Mobile, signed an undertaking on the decisions reached and authorised their facility agent, Guaranty Trust Bank to direct Barclays, to henceforth communicate to, and take instructions from the Board of 9Mobile, acting as representatives of the NCC, CBN and the banks themselves.
Representatives who signed the undertaken include Zenith, GTBank, UBA plc, Union Bank, Fidelity Bank, Ecobank Nigeria, Keystone bank, First Bank Nigeria Ltd, Skye Bank pls and FCMB.
“We further agree that the end December 2017 deadline remains sacrosanct, and that the sale process going forward follow the new timeline, requirements, and procedures agreed at this meeting.
“This decision binds all lenders in this consortium, regardless of their presence at this meeting,” they stated in their communique seen by BusinessDay.
The outcome of the meeting has put to rest fears that the sale process of 9mobile was about being aborted after Barclays put in place conditions that indicated it was about withdrawing from the whole process, after its handling of the process was questioned. Sources told BusinessDay that Barclays had written to undertake a review of the whole review process at a cost of US$1.5 million, which was supposed to be borne by the lenders and would last over three months. This has raised alarm that Barclays was forcing a force majeure that could bring the whole process to a halt and force a new adviser to be appointed.
Barclays had written the latter after the CBN and NCC had raised concerns with Barclays and later jointly wrote to GTBank, which is the facility agent for the 9mobile syndicated loan. In the letter, the two regulators expressed displeasure with the “unwillingness of Barclays Africa” to follow due process in the bid.
In the letter dated November 4, 2017, the two regulators said that they had made it clear from the beginning that the bidding process for 9mobile must be “transparent and fair, with the financial and technical capabilities of the final bidders without question.”
“Despite these, we have serious concerns. Indeed, we have observed with increasing displeasure the unwillingness of Barclays Africa to follow due process in the bid. Since the appointment of Barclays Africa as financial advisers, they have repeatedly exhibited signs of opacity in the sale process for 9mobile. Given the overriding public interest in the company and the need for transparency, we advised that Barclays advertise the call for ‘expression of interest,” NCC and CBN jointly signed by Emefiele and Umar Danbatta, Executive Vice Chairman, NCC.
Documents seen by Business Day show why the NCC and CBN were concerned. Barclays had drawn a scorecard which assessed all the 17 bidders using a four-point scoring system of five criteria on November 9.
But there were concerns that the scorecard has not necessarily resulted in the most qualified bidders being selected to move forward to the next stage of the bidding process.
Available documents show that Barclays has already concluded the assessment of 17 potential investors and subsequently qualified six of them for the next bid stage.
The 17 companies bidding for 9mobile include; Globacom; Airtel Nigeria; Smile Telecoms Holdings Limited; Dangote Industries Limited; Helios Investment Partners LLP; Centricus, Lintel Capital & Africell Consortium; The Abraaj Group; Teleology Holding Limited; The ACA Consortium and the Africa Finance Corporation; The Carlyle Group; Milost Global Inc; NatCom Development and Investment Limited (Noel); Compusectechnologies Limited; H&G Consortium; Adbro Group; Telecapital Nigeria limited and Greenwich Trust limited consortium; and Obot Etiebet & Co.
Barclays only qualified six of the companies, including Glo, Airtel, Dangote, Smile, Helios, Centricus, Lintel Capital & Africell for the next bid round.
“We were not satisfied with the criteria used in selected the six that were per-qualified. We therefore insisted that they instead allow all bidders who scored 10 and above to move to the next stage. That will bring the number per-qualified bidders to about 12 but two bidders may have dropped out, leaving 10,” a source following the deal told BusinessDay.
Documents seen by BusinessDay show Barclays rated Globacom mobile first, having scored it 20 points over 20 which is the highest score. Glo was followed by Airtel Nigeria which scored 18 out of 20 points. Dangote Industries came third, also scoring 18 points.
Barclays evaluated the 17 potential buyers of EMTS based on five criteria, including Strategic investor and track record in operating or investing in the Nigerian or African TMT space; financial capacity, and strong demonstrable ability to secure financing to complete a transaction; Technical capacity and relevant telecommunications industry experience and demonstrable evidence or ability to manage a telecoms company of this nature; Track record of operating and investing in Nigeria, as well as ability to provide a binding offer within the stipulated time period, that is mid-December, 2017.
But what raised concerns, sources close to the deal, told BusinessDay, is the discovery that Barclays had disqualified some companies which presented strong financial position and advanced technical capabilities, as shown in their bid documents, but qualified those which had less qualifications to move into the final bidding process.
Some of the companies that were not pre-qualified for the next stage had presented a strong financial and technical capacity but were scored very low by Barclays and disqualified from moving over to the next round.
Teleogy which claims to have commendable years’ experience in telecommunications field and proposed to assume the indebtedness of 9mobile, totaling US$227mn N113bn was not approved for the next stage.
“Teleology Holding Limited is a Special Purpose Vehicle (SPV) formed and owned by industry veterans, specifically to acquire a substantial holding in EMTS and thereafter potentially other underperforming Mobile Network Operators (MNOs). Included in this team are five of the top leadership executives who established and grew MTN Nigeria from 2001 to 2005,” the company stated in its bid letter written on July 12, 2017.
Teleology further explained its transformation plan to include to “acquire immediate control of the EMTS operations, launch of a transformation plan, and raise US$500mn+ of expansion equity.” It also proposed to rebrand the business with a recognised global telecom partner presently under negotiation, potentially Virgin Mobile or Vodafone.
In the letter, the company also presented a five-tranche repayment schedule for the EMTS existing facility, beginning June 30, 2018 through June 30, 2019.
Furthermore, as part of their bid support, Teleology presented letters of recommendation, from well-meaning financial institutions, reputable telecommunication companies and prominent traditional rulers in the country backing their bid.
One of the letters of support BusinessDay gathered came from Huawei who is the largest creditor to EMTS as well as UBS, the Swiss global financial services.
Despite these credentials, Barclays scored Teleology 14 overall, giving the company four points on three criteria but one on financial capacity, and strong demonstrable ability to secure financing to complete a transaction, and also one on the ability to provide a binding offer within the stipulated time period, which is mid-December, 2017.
Another potential buyer of 9Mobile- Telecapital Nigeria Limited which Barclays also disqualified from entering the next stage proposed US$713mn as total investment on offer, including, US$313mn for the payment of indebtedness to banks and other creditors which 9mobile owe as well as US$400mn as reserve for network stability and expansion.
“Our strategy is to consolidate the company around issues such as: robust management team, market penetration and branding, smart TeleTowers and Metropolitan Fiber Network, Frequency Optimization and Acquisition as well as responsive stakeholders’ management,” the company stated in its bid letter.
But despite the proposal, Barclays, scored Telecapital two over twenty under its overall recommendation and zero on financial capacity, and strong demonstrable ability to secure financing to complete a transaction and disqualified it from participating in the next stage.
Reliable sources inform BusinesssDay that Barclays is not quite comfortable about the concerns raised by the NCC and CBN that it must stick to a transparent process.
The sources also confirm that Barclays has, however, not and is not ready to pull out as financial advisers despite earlier insinuations that the company had already decided to jettison the deal. This position was also confirmed last Tuesday by the CBN governor, Godwin Emefiele.
Barclays was contracted to midwife the financial sale of the troubled Etisalat- later changed to 9mobile- following poor management of the company which culminated in huge loans totalling about $1.2 bn to its creditors.