Starcomms, the first and only telecoms company to be listed on the Nigerian Stock Exchange, is mired in controversy over alleged infractions in its private placement, with telling effects on the performance of its shares
By Chikodi Okereocha and Abiola Odutola
When Starcomms raised N64.35 billion through private placement in June 2008, and was later listed on the floor of the Nigerian Stock Exchange, NSE, it raised the adrenalin of shareholders of the company and prospective investors. That exercise increased the capital base of the company by N92.8 billion and offered its shareholders hope of bountiful returns. It could not have been otherwise, coming at a time Nigerians, especially investors, considered the listing of shares of Starcomms and, indeed, other telecoms/information and communications technology, ICT, companies in the capital market as a game changer and a win-win situation for all stakeholders.
For instance, investors and experts had hoped that other telecoms/ICT companies would borrow a leaf from Starcomms, which blazed the trail as the first telecoms operator in the country to do a private placement and subsequently get listed on NSE. With their fantastic record of profitability, investors had anticipated that telecoms companies would be able to challenge the dominance of the market by stocks from the financial services and, oil and gas sectors.
Maher Qubain, former managing director, Starcomms, further enticed the investors when he boasted: “We have now diversified investment away from the banking sector. You now have an investment vehicle that allows you to benefit from the growth in the telecoms sector.” In response, many investors literarily fell over themselves to participate in the Starcomms’ private placement. The success of the shares on the first day made Olu Odejimi, a stock broker, to refer to it as a ‘wonder stock’ as it appreciated by five points within five minutes of listing gaining 70 kobo to close at N14.40. Odejimi and his colleagues projected that the shares would appreciate further given the enthusiastic response of investors.
However, four years down the line, Starcomms’ foray into the capital market has failed to meet the hopes and aspirations of investors let alone impact positively on the dwindling fortunes of the Code Division Multiple Access, CDMA, operator. While the envisaged bountiful dividend for investors has so far remained a pipe dream, the exchange is yet to witness any significant boost in capitalisation on account of Starcomms private placement. Instead, the private placement appears to have left sour taste in the mouths of all concerned parties particularly the investors.
The company’s placement, which so excited all the stakeholders, is now being trailed by allegations of infractions bordering on unethical transactions that lacked appropriate regulatory supervision. In the centre of the raging controversy now shaking the foundation of the already struggling telecoms firm are Chapel Hill Advisory Partners Limited and Stanbic IBTC Bank, the issuing houses, including other parties related to the transaction. They have being accused of misleading the investing public to purchase shares of the company at bogus prices, which are unsustainable on the floor of the stock exchange.
Ayoleke Adu, managing director, MD, MorganCapital Securities Limited, had opened a can of worms of how unsuspecting investors were allegedly misled by parties involved in the Starcomms private placement. The allegation was contained in a petition he authored May 11, 2012 and sent to Ibrahim El-Sudi, chairman, House of Representatives Ad-Hoc Committee probing the near collapse of the capital market. Adu alleged that hundreds of Nigerian investors paid monies into the Starcomms offer proceeds accounts in disregard of the statutory provision that only 50 investors should be offered or allowed to pay into the accounts in line with the Securities and Exchange Commission, SEC, Rule 90(i). Even with this, only 43 investors were allotted shares.
Adu told the committee that most of the investors that deposited money into the offer proceeds accounts and were not allotted shares were not refunded their money as statutorily required. Instead, “their monies were illegally converted and they were thereafter issued share certificates through very questionable procedures that did not involve a share transfer form (another statutorily requirement for transfer of shares).” To circumvent the rule that a private placement should not be offered to more than 50 people, Adu alleged that the issuing houses deliberately created and encouraged the use of investment vehicles to aggregate many subscribers.
One of the prospective investors whose name was conspicuously missing on the list of 43 investors is Circle Tel. A source told the magazine that prior to the May 2008 private placement, the Nigerian Communications Commission, NCC, the telecoms sector regulator, had granted an approval to Starcomms on April 21, 2008 to embark on the private placement. The approval came with a proviso that Starcomms should offer part of its shares to selected investors including a proposed preferential allotment of its shares to Circle Tel, a new strategic investor. The source who declined to be mentioned, however, said that by the end of the transaction, Circle Tel was not among the approved investors, and it has no representative on the board of Starcomms.
The House Committee was also informed that apart from the fact that as a private placement, the offer must not be extended to more than 50 people going by SEC Rule 90 (i)), the sale must not be disseminated through the media, or any other means of mass communication as provided by ISA section 69. However, contrary to their SEC approval, ISA and SEC rules and regulations guiding a private placement, the parties allegedly jointly and severally caused the offer to be disseminated and sold to members of the public in contradiction to ISA Section 67. He said that in spite of the purported transaction being called a private placement, the invitation to participate was widely disseminated by blind-copied emails. “The private placement was so much circulated as a public offer that even a staff of Chapel Hill referred to the offer as an initial public offer in an email dated 26/03/2008) and by word of mouth at the open investor fora organised by the parties,” Adu alleged.
The parties are also accused of receiving deposits into the offer proceeds accounts from people who they never even addressed any letters to, without ever considering how the person(s) obtained the details of the transaction. Besides, no prior approval was obtained from the SEC to make the offer public or to obtain an application or deposit of money from members of the public. The receiving banks are also said to have received deposits from members of the public even as early as May 2, 2011 when Starcomms was yet to receive SEC’s approval. To drive home his point, Adu implored the chairman of the Committee to ask SEC and the receiving banks, whether it is legal for them to have received monies from members of the public for a transaction that is yet to be approved by the SEC. He insisted that answers to these and other questions would reveal “a deliberate and orchestrated plan to defraud the unsuspecting members of the public.”
The three receiving banks include First City Monument Bank, FCMB, with Starcomms collection account number 0011080405409001; Stanbic IBTC Bank with account number 7200067098 and Fidelity Bank whose account number was not given. Over 350 people paid money into the FCMB’s Starcomms offer proceeds account between May 3 and May 16,, 2008 alone, according to the petition. Several people also paid money into the offer proceeds accounts with Stanbic IBTC Bank and Fidelity Bank.
The alleged infractions are believed to be responsible for the free fall of Starcomms shares in the stock exchange. For instance by the end of 2008, the value of Starcomms shares had crashed to N4.01. As if that was not enough, the value of the ‘wonder stock’ diminished further as it fell to N1.38 as at December 30, 2010. By May 30, 2012, the stock stood at N0.50k, which is the lowest technical value it could trade on the floor of the exchange. Although, the projection in the placement memorandum says that Starcomms would declare a loss of N197 million at the end of 2008, the company promised that it would start paying dividend by 2010. Starcomms projected that it would rake in profits of over N4.5 billion and N10.5 billion in 2009 and 2010 respectively. But Starcomms declared a loss after tax of N1.014 billion in 2008 and N2.149 billion in 2009. By 2010, total losses incurred by the company had climbed to N7.66 billion, hitting an all-time high of N17.5 billion in 2011.
The MD of MorganCapital Securities is therefore, praying the House Committee to investigate the Starcomms private placement transaction, insisting that it was used to scam Nigerians of billions of naira. He also urged the House to pass a resolution mandating SEC to compel the issuing houses to refund all the monies (including interests at commercial rates from June 26, 2008 until the date of execution of the House resolution) collected into the offer proceeds accounts from prospective investors that were not on the list of 43 allottees cleared by SEC. The SEC, on the other hand, should further, commence criminal prosecution of the entities involved. According to him, ISA Section 41 (1), (2), (3), (4) and (5) empowers and, indeed, compels SEC to make the orders.
Adu seems to have spoken the minds of other aggrieved investors especially those that bought the offer in 2008 and who now believe that the management of Starcomms had pulled wool over their eyes. Femi Jegede, an investor, called on SEC to intervene in the issue before it escalates to the extent of scaring investors from the market. He argued that the less than transparent manner the private placement was done is shameful and warrants an investigation by the relevant authorities and appropriate sanctions on anyone found culpable in the infractions. Jegede expressed regrets that he and several other investors relied on the analysis provided by Chapel Hill and Stanbic IBTC to invest in the offer, but were disappointed to learn that the information they provided were wrong. “The market is an untapped goldmine to generate wealth and not to fraudulently enrich people who are influential in the business and financial sectors. How do we justify or explain the flagrant act of fraud against the public in a regulated market?” he queried.
The alleged infractions by Starcomms and the issuing houses also did not go down well with Adeleke Adebayo, general secretary, Independent Shareholders Association of Nigeria. Adebayo explained that at the time Starcomms stormed the market to raise money, the market was awash with cash and a lot of investors were eager to invest in any shares or offers available. He, however, said that both the regulators and the market operators failed to guide investors appropriately on the kind of stocks they could invest in. “The catch phrase of the operators then was invest in any shares now and make about 200 per cent returns or more before then end of the year. And several investors fell for that trap without considering the fundamentals of such companies,” he recalled, noting that SEC was overwhelmed by the increased tempo of activities in the market in 2008 hence it failed to supervise the private placement it approved before listing the shares on the floor of the stock exchange. He, therefore, urged SEC to wake up to its oversight responsibilities of supervising the raising of funds from the capital market as that is the only way the apex regulator could restore lost investors’ confidence. “There should be a complete overhaul in SEC and people who understand the market should be brought on board,” he noted.
However, a more disturbing dimension to the raging controversy over alleged infractions in Starcomms private placement, according to experts, is the possible effect it may have on the agitations by Nigerians and the authorities that telecoms operators should be compelled to be listed on the stock market to allow Nigerian investors benefit from their jumbo profits. The National Assembly has since taken steps to enact a legislation to compel multinationals, telecoms companies, and oil-producing companies to list their shares on the exchange. Both the Senate and the House of Representatives have sponsored a joint bill, which would ensure that major telecoms and oil-producing companies operating in the country are listed on the NSE.
At the heart of the matter is the fact that whereas companies like MTN, Airtel, and Etisalat are quoted on the exchanges of their countries of origin, their shares are not listed on the stock exchange in Nigeria where they have major operations and earnings. Although the move has not gone down well with telecoms operators, the consensus of experts is that if all the telecoms operators get listed it would significantly increase the market capitalisation.
However, with Starcomms, the first and only listed telecoms firm, now in the centre of controversy, there are concerns that this might affect the current agitation to get other telecoms companies to list. To market operators like Atiku Kafaru, managing director, Camry Securities, the current controversy over Starcomms private placement is capable of discouraging other telecoms firms from listing their shares on the floor of the NSE. He implies that such development could scare both the telecoms companies and their multi-national counterparts from the market.
Meanwhile, the management of Starcomms and other parties fingered in the alleged scam are yet to appear before the House committee. None of them has made any public statement on the matter either. The magazine’s efforts to get the response of the company on some of the allegations raised in the petition failed. TPT International, public relations consultants to Starcomms, also said the company was unwilling to speak on the issue at this point in time. However, the weeks ahead promise more fireworks as all the parties involved may be forced to appear before the ongoing House committee probe of the market.