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 Daily Independent Online.
* Friday, July 23, 2004.
EWI faces bankruptcy over botched Nigerian deal
By Shina Badaru
IT.Telecom Editor
Econet Wireless
International (EWI) is threatened by an acute financial hemorrhage
following the severance of partnership with Nigeria’s cellular operator,
Vmobile, its former partner has said.
Vmobile (former
Econet Wireless Nigeria, EWN) says it would not be drawn on the recent
overtures from EWI Chief Executive Officer Strive Masiyiwa that he is
ready to stake an estimated $230 million (N32.2 billion) to acquire
majority stakes in the Nigerian cellular business.
However, Vmobile
spokesman Emeka Oparah said in an interview that Masiyiwa’s claim is
suspect as a due diligence conducted by Vmobile showed that EWI and
Econet Wireless Limited (EWL) have paid up capital of $12, 000 and $1,000
respectively.
The opinion is
based on an audit conducted by Deloitte & Touche, the London-based
auditors of EWL, which showed that at the end of June 30, 2003 EWL as a
group was not in good financial health.
EWL holds 100
per cent shares in three subsidiaries, including Econet Satellite
Services (incorporated in the United Kingdom), 100 per cent in EWL (the
parent company), 63 per cent in Econet Wireless New Zealand and 28.85 per
in Mountain Kingdom Communications.
The 5 per cent
it had in EWN is the subject of a dispute between Masiyiwa and other
shareholders in the business following which he was stripped of his stake.
Based on the
audit of EWL for the year ended June 30, 2002 by Deloitte & Touche
noted that “all of the company’s investment businesses operate in the
field of telecommunications and all these investment companies require
substantial additional funding in the short term in order to realise
their expected longer term valuations.
“Such additional
financing is not in place within these investment companies and there
remains a risk that necessary financing for all these businesses may
never be raised. The company has no finance facilities in place and
therefore is unable itself to provide any further financing to its
investment businesses. Accordingly, any future financing for these
businesses is reliant upon the support from new third parties or other
equity holders.
“If these
investment companies are unable to raise the necessary finance, adjustments
may be required to the carrying values of these investments to reflect
potential impairment to their value and to bring the values down to a
realisable amount”.
Oparah added
that besides this audit assessment there are other factors, including the
inability of Masiyiwa to fund the 5 per cent eventually allotted him when
his stake was reduced to 40 per cent.
Vmobile board
constituted a due diligence on EWL when it sought to acquire stakes in
the company alongside South Africa’s Allied Technologies Limited (Altech).
The due
diligence, dated September 1, 2003, said: “The only financial information
presented to us in respect of EWL was the financial statements for the
year ended 30 June 2002. From these financial statements it is clear that
EWL is a dormant/non-trading company. Consequently, no income statements
or cash flow statement was included in the financial statements and, due
to its size; UK law does not require the preparation of consolidated
financial statements. In addition, the fact that the financial statements
relate to a period that ended one year ago, detract from their relevance.
“During FY02,
the company issued additional shares to the value of US$12.9 million in
exchange for receivables due to its new shareholders valued at US$12.9
million. This method of capitalising the company is unusual.
“In addition to
the share issue, the company raised US$7.9 million in the form of a
short-term loan from EWI Bermuda. This loan is reflected as short-term,
dollar-based, bears no interest and has no fixed repayment terms. We
cannot ascertain how this loan will be repaid.
“We were promised details of the
subscriber numbers in the different countries that EWI operates in, but
have not yet received this. However, we confirmed from publicly available
records that Econet Wireless Zimbabwe (the largest network apart from EWN
that is managed by EWI) had 139,795 subscribers as of 31st December 2002”.
A senior
official of Vmobile also said the pre-emptive right to Vmobile’s
controlling stake, which Masiyiwa is pushing in his arbitration case,
“does not exist in the statute books in Nigeria”. In any case, he added,
you had a case of “Rolls Royce versus Bettle, which will you prefer?”
He said the
issue is not that Masiyiwa was denied the privilege to exercise that
right, but that the truth was that during the October 6 meeting of the
company, “Strive actually submitted an offer to the meeting through his
representative but was rejected”.
The basis of
rejection of Masiyiwa’s offer was “the unsatisfactory outcome of the due
diligence on his operations outside Nigeria, the fact that his price was
fixed and the need to negotiate a fresh and suitable agreement on the
basis of management and equity.
“If you look at the account of
EWI, he is only transferring receivables and there is no cash as well as
the clear lack of managerial competence”.
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