The consortium of Nigerian banks running 9mobile have refuted claims of issues with indemnity which is supposedly halting the finalization of the deal to transfer the telecommunications to Teleology Holdings Limited, the preferred bidder as new owners of the telecommunications company.
An indemnity clause essentially involves parties to commercial contracts having to compensate the other (or each other) in case of any liability or loss arising out the signed contract. The formula to compute the amount of compensation is usually included in the contract and the precise wording of the indemnity clause determines the extent of the indemnity and the risks allocated between the parties to the contract.
Sources at the Nigeria Communications Commission (NCC) however tell BusinessDay that contrary to earlier reports that the deal was being held back by the failure of the telecoms regulator to issue a certificate of no objection to finalise the sale, the real stumbling block came from AFREXIM bank, lenders to Teleology.
The sources say that the lawyers for AFREXIM bank, where Teleology Holdings Limited raised most part of its $301 million financial bid, expressed concerns about the final payments for 9mobile and had “asked for a high level of indemnity from 9mobile, run by the owed banks before the conclusion of the sale”. NCC says it then told the banks to resolve the issue and get back to them before the deal can be sealed.
However, the CEO of one of the owed banks told BusinessDay yesterday that although a reason for indemnity was raised during the high level meeting between the banks and the regulator in Abuja a few weeks ago, “it was not an issue and it is a private matter that should in no way be a deal breaker, or cause for a delay.”
After running into debt for defaulting loan payments to a consortium of Nigerian banks, the then Etisalat was taken over by the owed banks, renamed 9mobile and opened up to new investors through a bidding process.
Teleology holdings limited emerged as preferred bidder and said that it had successfully raised and made ready its balance of $251 million which was paid into an escrow account about two weeks before the July 25, 2018 deadline date.
This is in addition to the initial $50 million paid as a non-refundable deposit on March 21 2018, to show commitment on the sale in fulfilment of its buyer obligation but it is still unable to take over 9mobile.
Umar Garba Danbatta, Executive Vice Chairman of NCC who spoke to Journalists on Monday said that the sale process has been delayed as a result of other debts incurred overtime by 9mobile.
However, he said that about half of the debts have been settled and the regulator will investigate the capacity of Teleology by carrying out another round of technical evaluation and due diligence on the company.
“9mobile owed N12 billion Annual Operating Levies (AOL) for two years, numbering fees of N1 billion and spectrum fees of N2.3 billion, and on paying the spectrum fees, half of the AOL and half of the numbering fees, the NCC transmitted a letter of ‘No Objection’ to allow the transfer of shares to United Capital from EMTS, the original owners of Etisalat Nigeria.
As soon as they meet the next conditions, and the technical evaluation of Teleology is concluded, we will again transmit the final approval letter of ‘No Rejection’ for transfer of shares form United Capital to Teleology,” Danbatta said.
The NCC EVC maintained that the sale is in its final stages and would be concluded as soon as possible.
The firm 9Mobile generates revenues of N200 billion per annum, with an EBITDA margin of 10 percent, according to data from investment Bank Renaissance Capital.
“There has been no capex spend since 2014. 9Mobile needs to invest between $300mn- $450mn a year to remain competitive,” Renaissance Capital analysts led by Olamipo Ogunsanya, said in a recent note.
“9Mobile has lost subscribers, its margins are under pressure, and lack of capital investment has made it less competitive than peers.”
According to one of the bank CEOs, “first the NCC said 9Mobile was owing it about N9bn in AOL charges, spectrum fees, etc, and that this debt must be settled. We said but that will be heavy handed given that other telecoms firms owe the NCC and it has not restrained them from carrying out their legitimate business. But so as not to present the regulator with a good excuse, the banks rallied, round working with 9Mobile and paid N6bn of that amount to NCC. The banks and 9Mobile also agreed with NCC on a credible plan for the balance.
“When this was no longer the issue, the NCC suddenly came up with a demand to conduct due diligence on the buyers. But where was the NCC (which has a representative on the board of 9Mobile) when Teleology was shortlisted? Where was NCC when the share purchase agreement was signed? The CVs of the key officers of Teleology have been sent to NCC.
According to a second bank CEO, “when this ceased to be the issue, NCC has now come up with another excuse, and that is that 9Mobile has to pay its trade creditors like IHS, Huawei and Nokia. And we say yes 9Mobile is owing but it is a going concern and there is no company anywhere that does not owe. Even the NCC cannot say it is not owing anybody today.”
The banks also agreed to share some of the funds they are expecting from Teleology with the trade creditors, once the 9mobile sale is concluded, however that has again failed to move the needle on the transaction.
““The longer this transaction takes to mature, the lower the value of what they are acquiring,” said Bismarck Rewane, CEO of economics consulting firm Financial Derivatives.
“We need 9 mobile to survive and we need it to be competitive, what we do not want is for the business to become the nearest thing to a duopoly. That is not good for the consumers and the economy,” Rewane said.
BusinessDay learnt that the central bank which restrained the banks at the beginning, now feels thoroughly embarrassed by the ugly turn of events.
Industry analysts and telecoms market officials say that while the crisis at 9Mobile has lasted the biggest beneficiary has been the competitor AIRTEL.
According to one industry player, “those who point to MTN as the biggest single beneficiary miss the point. MTN will benefit on account of its size, but the largest single beneficiary in the last one and half years is AIRTEL. Its EBIDTA are up, AIRTEL revenues are also up, helping it to take out some cash. We reckon that two years ago, annual revenues for AIRTEL stood at around N250bn while that of 9Mobile was N220bn, about 80%. However, by year end July 2018, we believe AIRTEL revenues jumped astronomically to around N350bn and the revenue of 9Mobile has dropped to far less than 80% of Airtel’s.”
JUMOKE Akiyode-Lawanson
