British Telecom (BT) has pulled out of the technical services agreement with Transnational Corporation Plc (Transcorp) for the management of NITEL and its mobile subsidiary, MTel. Transcorp, with BT as its technical partner had acquired a 51 per cent stake in NITEL last year under the privatisation exercise handled by the Bureau of Public Enterprises (BPE).

But in a letter to Transcorp, BT cited the unavailability of working capital needed to turn around NITEL and MTel, and the lack of adherence to corporate governance principles by the companies' management and their boards as the reason for its decision to withdraw from the agreement.

The decision by BT to terminate the technical services agreement it has with Transcorp could not have come at a worse time for the Nigerian conglomerate which is yet to overcome the disappointing returns from its initial public offering (IPO). Capital market analysts estimate that the Transcorp's IPO may have been undersubscribed by as much as 70 per cent.

Under the technical services agreement, BT was expected to have provided technical and managerial expertise to Transcorp for one year in the first instance, but the contract comes up for review by both parties every six months. In exchange for its services and upon meeting key performance benchmarks that had been agreed under the contract, BT was supposed to have been paid a fixed fee and a performance bonus by Transcorp.

In addition, salaries of its two contract staff seconded to run NITEL and MTel for the duration of the technical services agreement would have been met by Transcorp. Transcorp had also committed to raising substantial funds from banks and the capital market to inject into both telecom firms for their network expansion programmes and in order to meet other commercial obligations.

In that regard, Messrs Steve Brookman and John Weir were seconded by BT as CEOs of NITEL and MTel respectively in November last year to oversee their day to day operations. Ms Funke Okpeke, meanwhile, was employed by Transcorp and appointed Chief Operating Officer (COO) of NITEL.

But ever since Transcorp took over NITEL, and by extension its mobile subsidiary in November, the reconstituted boards of both companies have been enmeshed in internal wrangling among its members, on the one hand, and disagreements with the British CEOs on how best to manage the companies on another.

Specifically, John Weir, who was appointed CEO of MTel, has been at loggerheads with the company's chairman, Gboyega Olulade and other board members over the selection of equipment vendors for the company's network expansion programme.

Weir was said to have shown a preference for the appointment of Huawei and Motorola, while Olulade was pushing for Ericsson and other vendors. Weir also took umbrage over the appointment of the new Chief Technical Officer (CTO), Davidson Anene, by Olulade without his input, and is said to have refused to recognise Anene as the company's CTO.

Things came to a head last month when MTel's board comprising Transcorp members and Federal Government representatives terminated Weir's appointment and gave BT four weeks within which it was expected to send his replacement.

His dismissal did not sit well with BT which was already getting disenchanted with Transcorp's inability to deliver on its promise to provide working capital for NITEL and MTel, thus compelling it to pull out of the agreement in its entirety. Both companies are also riddled with massive debts owed banks, equipment suppliers and unsettled interconnect fees.

The void created by BT's withdrawal could not have come at a worse time for Transcorp. The company's IPO held between December and January this year is believed to have been undersubscribed by 70 per cent.

Even a two week extension granted by the Securities and Exchange Commission (SEC) to Transcorp which embarked on road shows to the UK and South Africa to shore up investors' participation in the offer did not help matters.

Capital market operators are of the view Transcorp grossly underestimated the capacity of the market to absorb another major public offer right on the heels of the Dangote Sugar Refinery Plc IPO.

According to a market analyst, "the timing for Transcorp's offer was obviously not right. It came at the end of the year when most investors were cashing in to raise money for the yuletide season. Besides, it came immediately after Dangote's IPO which had soaked up most of the investible funds in the market." Transcorp, he posited, should have bid its time and waited to go to the market later this year when investors would have had a clearer picture on the company's direction.

The undersubscribed offer is already impacting on Transcorp's share price which has been on a downward spiral since the technical suspension on the company's shares was lifted twice by the Nigerian Stock Exchange. A few weeks after the IPO had closed the Stock Exchange lifted the suspension placed on Transcorp's share which took a hit in four days of trading to fall from N9.71 kobo per share to N8.34 kobo per share.

Without prior notice to stock brokers, the Exchange placed another technical suspension on the shares, which was ostensibly done to stop the free fall. However, the official explanation given by the Exchange for the second suspension was that it had done so to enable the Issuing Houses to the offer conclude collation of returns.

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