New Twist in NITEL Privatisation Raises Hope

Mergers, Acquisitions and Financial Results

Nigerians at the weekend hailed the decision of the Bureau of Public Enterprises (BPE) to open talks with Omen International Consortium, the reserved bidder for the privatisation of Nigerian Telecommunications Limited (NITEL), following the inability of New Generation Telecom to pay for NITEL/Mtel.

BPE last week invited Omen International to revalidate its earlier bid of $956.9 million in order to take over NITEL.

According to a statement by BPE spokesman, Mr. Chukwuma Nwokoh, the bureau has written to Omen International to revalidate its reserve bidder status for NITEL privatisation with its mobile subsidiary, M-tel.

Part of the letter read: "If your bid is re-validated, it would give the Federal Government the right to invite your consortium to enter into negotiations to take up the offer."

In addition, BPE stated that according to Section 3.4.3 of the Request for Proposal (RFP) sent to bidders for the privatisation of the telecommunications outfit, "your offer remains valid for six months after submission date, except the bid proposal is extended. Since your bid was submitted February 16, 2010, it expired August 15, 2010. We, therefore, wish to invite you to revalidate your bid bond of April 4, 2010 if you are still interested in the transaction."

Consequently, the bureau has written to New Generation Consortium that its position as the preferred bidder for NITEL privatisation has lapsed. The decision is premised on the consortium's inability to pay the 30 percent bid security, amounting to N112.5 billion ($750 million) as a pre-requisite to acquire NITEL/Mtel.

Commending the decision of BPE, President of the National Association of Telecom Subscribers, (NATCOMS), Mr. Deolu Ogunbanjo who spoke on behalf of telecom subscribers, commended BPE for moving swiftly to consider the reserved bidder for the revalidation deal.

According to him, "Any buyer willing top pay for NITEL should be given without hesitation. What we want is our national carrier to bounce back to life, start working and face the competition already on ground."
Asked if NITEL was worth the $956.9 million that the reserved bidder offered, Ogunbanjo said new developments in the telecom sector have helped to devalue the worth of NITEL, but maintained that it is still worth between $1 billion and $1.5 billion.

President of the Association of Telecom Companies of Nigeria (ATCON) Titi Omo-Ettu, in 2008, valued NITEL at $2.2 billion at 100 percent sale, long before the preferred bidder for NITEL, New Generation Telecom, offered to pay $2.5 billion in 2010, but was unable to raise the amount.

Omo-Ettu, who said he was worried about different calculations as figures for the value of NITEL, insisted that the first national carrier remains highly valued because of the worth of its licence as the national carrier. He explained that his calculation of $2.2 billion as NITEL's worth in 2008 was only a guide to investors who were interested in buying NITEL then. He, however, added that the recent emergence of undersea cables for bandwidth expansion, has further devalued NITEL, but maintained that NITEL is still worth about $1.8 billion.

There was a clearer picture last week that New Generation Telecoms, the Chinese consortium that won NITEL's bid in February, last year, may have over-priced the company, hence its inability to pay for NITEL since last year.

It was gathered from a reliable source that its financier, after a separate assessment of the value of NITEL, discovered that NITEL was over-priced and would not want to put its money into the deal.
When contacted on phone, Mr. Usman Gumi, Managing Director of Gicell, the local partner of New Generation Telecoms, denied that the consortium's foreign financier backed out of the deal as a result of perceived over-pricing of NITEL. Usman, who was still optimistic that New Generation would get funds to pay for NITEL in future, said if given another opportunity to bid for NITEL, the consortium would bid the same amount, insisting that NITEL is worth more that what other competing bidders are quoting for it.

New Generation Telecom of China is a consortium of China Unicom of Hong Kong, Minerva Group of Dubai and Nigeria's GiCell Wireless Ltd. It won the bid on an offer of $2.5 billion (N375 billion) for a 75 per cent stake in NITEL/Mtel, while the reserved bidder, Omen International, offered $956.9 million. The third on the list is Brymedia, which offered $550 million.

Having emerged as the preferred bidder during the opening of financial bids for the privatisation of NITEL and Mtel, since February 16, 2010 in Abuja, New Generation failed to pay up the initial 30 percent bid security, amounting to N112.5 billion ($750 million) as a pre-requisite to acquire the company.

New Generation was meant to pay the amount within ten calendar days from the date of issue of a demand letter from BPE and then pay the balance of $1,750 million within 60 days from the date of the offer letter.

But the company kept postponing the payment date since last year, only to return to BPE in December, last year with proof of financial statement from its financiers, indicating willingness to pay, but at no fixed date.
BPE, not satisfied with the delay in payment, last month, suggested to the National Council on Privatisation (NCP) to revoke the sale to New Generation Telecom.

BPE finally wrote off the sale of NITEL to New Generation Telecom, when last week, it invited Omen International, the reserved bidder, to revalidate its bid for NITEL/Mtel.

There are, however, fears that Omen International may not do anything better than New Generation Telecom, since both operators have the same technical partner, albeit different financiers.

The third on the bidding list, Brymedia, which initially offered $550 million, has written to BPE to surrender NITEL to it, as it was ready to up its offer to $600 million.

Although New Generation emerged the preferred bidder during the opening of financial bids since February 16, 2010 in Abuja, the government cancelled the sale and redirected BPE to conduct fresh due diligence on all bidders. Government's action was sequel to the denial of China Unicom, a member of the New Generation Consortium, which claimed in a letter to BPE that it had no knowledge of the bid for NITEL.

Subsequently, NCP, at its meeting of March 12, 2010, set up an eight-member ad-hoc committee under the chairmanship of the Attorney-General of the Federation to review the NITEL/Mtel transaction. The committee came out with a report that the transaction complied strictly with due process as outlined in the BPE's Procedures Manual (PM) and that the necessary approvals were obtained through the Technical Committee (TC) and the NCP at every stage of the transaction.

Based on the ad-hoc-committee's report, the Federal Government directed BPE to receive initial payment from New Generation to enable the latter to acquire NITEL/Mtel.

But even at the instance of the orders of government, New Generation was unable to raise money to pay for NITEL, after several extensions given it by BPE.

Earlier, in 2002, the government tried selling 51 per cent stake in NITEL to Investment International Ltd of London (IILL) for $1.2317 billion, but the transaction failed.

After that, government entered into contractual agreement with Pentascope of The Netherlands to manage NITEL for some years before the government gets a credible buyer. Pentascope eventually mismanaged NITEL and plunged it into a more deteriorating condition, and the contract was terminated.

In 2005, government, through BPE, tried again to sell NITEL through a bidding process that eventually saw Orascom Telecoms of Egypt winning the bid, but because government was not satisfied with the $225 million Orascom offered, government decided to cancel the offer and began yet another bidding process, but ended up reaching a negotiated bidding with Transcorp which paid $500 million to acquire the 51 percent stake in NITEL in 2006.

The Transcorp deal was, however, terminated for its failure to raise the stakes of NITEL as agreed in the contractual agreement between it and the government.

Following the revocation of Transcorp's licence to manage NITEL, government again initiated another move to sell NITEL in 2008 and eventually, sold it abortively to New Generation for $2.5 billion in 2010.