Transcorp looks at new carriers carrier strategy for“car wreck” Nitel
Although Transcorp succeeded in buying Nigeria’s incumbent Nitel, it does not have the necessary funds to invest in developing it. Despite conducting a fairly vigorous round of fundraising, both local and international investors have remained lukewarm about putting their money into this “car-wreck” of a company. Its new management has begun to face this reality this week as it presented its new strategy to its Board, the Transformation and Repositioning Initiative.
Thus far Transcorp have not played their cards well. The attitude of its first set of managers managed to scare off BT (after sacking one its staff), which had been brought in to provide much needed external expertise. And this was the second time it had scared off a much-needed partner. Its technical and financial partner Etisalat walked away before the deal was finalised after Transcorp failed to come up with the share of the acquisition price it had originally agreed.
The company has been in negotiations with Vodacom who want to buy its mobile subsidiary MTel but the negotiations seem stuck on whether the latter can assume majority control. The deal leaked to the press last week appears to be worth $480 million for a 42% share with an option for a further 9% within 3 years. Vodacom is understandably reluctant to pay this kind of money and invest more money in the network without majority control.
In order to facilitate the sale, Nitel will demerge the company and clean up its balance sheet with a debt-for-equity conversion. Local company Alheri Engineering is said to have made a counter-offer but it looks like its presence as counter-bidder is designed to be part of a strategy by Nitel to keep Vodacom from backing away. Vodacom is the only one of the larger pan-continental mobile chains that has failed to get into Nigeria, one of the continent’s major mobile markets.
Unable to raise external capital of any scale and uncertain about the MTel deal, the Board has now approved a strategy that will be used to try and box itself out of this tight corner. Nitel will largely withdraw from the retail sector, becoming a carrier’s carrier and working with retail partners. In order to improve the availability of its services and raise money, it will enter into vendor management and financing deals.
It will go to its debtors and offer them a “write-down” on what they owe the company in exchange for speedy payment. It is not clear how this written down debt and the debts written off by demerging MTel will affect the overall balance sheet but the company must surely face a substantial level of accumulated losses. There have been rumours of imminent bankruptcy but given the “behind-the-scenes” political will to make things succeed for the new owners, this seems unlikely.
A source at Nitel told This Day that the company was having a problem “managing the ailing network”. The likely approach would be that an equipment vendor like Huawei or ZTE would loan the company money to modernise its network and would subsequently manage the network (for an agreed fee) on their behalf. This is designed to address the network availability issues that have plagued the demoralised company over the last 12 months.
It is not clear whether its SAT3 capacity would be hived off separately. But its current position with SAT3 clearly illustrates the company’s dilemma. It owes so much to the system’s managing agent Telkom South Africa that it is unable to ask for new capacity before it has paid off its past debts. The company also had a history of running up debts with other international voice minutes suppliers and then opening up new accounts with other companies once the original suppliers would no longer extend their credit.
In addition, there has also been a long history of spectacular levels of internal revenue “leakage” which in Transcorp’s acknowledged absence of the ability to manage the network is unlikely to have diminished. According to the same report in This Day, Nitel has not fully restored its pre-paid platform which crashed two years ago.
Transcorp is a company run by individuals close to the former President Olusegun Obasanjo and despite its difficulty in meeting the first payment for the acquisition of the company, the deal was completed prior to his leaving office. It was seen as a way of Nigerian owners still retaining control of the company, rather than letting it slip into the hands of international bidders.
However, since Transcorp has neither the capital nor the management resources to run Nitel, it is unclear what the company has brought to the deal. The new management must be on short notice to achieve something substantial within the next 6-12 months or the whole deal could turn sour. Much hangs on whether it will get some financial relief from the deal with Vodacom if it goes ahead.