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B N W: Biafra Nigeria World News |
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Govt, Virgin shop for institutional investors
AMID mounting opposition from stakeholders in the aviation industry, the Federal Government and Virgin Atlantic Airways have begun a search for institutional investors for the new flag carrier, Virgin Nigeria.
Aviation sector sources in Lagos revealed that some organisations were already being approached while local agents of Richard Branson, the owner of Virgin Group are also trying to raise the 49 per cent equity ceded to Virgin from the financial market.
The Federal Executive Council (FEC) had last Wednesday approved the appointment of Virgin as the core investor and strategic partner in the new carrier to be named Virgin Nigeria.
Virgin Atlantic edged out South African Airways, which had earlier won the bid early in the year but pulled out upon government's insistence that Nigerians take a minimum of 10 per cent of its equity when the South African national carrier is privatised
Announcing the FEC decision, Aviation Minister Mallam Isa Yuguda said 51 per cent of the equity would go to Nigerian institutional investors who would later sell half of that to the Nigerian public while Virgin takes 49 per cent.
To accelerate the take-off of the carrier and circumvent any possible problem with the Nigeria Stock Exchange (NSE), the minister said the government might underwrite the 51 per cent equity for the institutional investors, which will later be refunded to the coffers of the government.
Speaking to The Guardian from London, John Adebanjo, Virgin's representative in Nigeria said although the institutional investors were yet to be selected they would be from the banks, insurance companies, pension fund schemes and others with long-term funds.
"We have not selected any institutional investor yet because we have not done a road show but we are looking at banks, insurance companies and firms with pension funds. It is going to be like Unitrust sort of arrangement," he said.
Adebanjo also explained that there would be laid down procedure and requirements for selecting the institutional investors when the financial consultants to the government and those of Virgin meet.
More stakeholders and analysts including workers of Nigeria Airways under liquidation and domestic operators have faulted the selection process that threw up Virgin as the preferred bidder and the terms of the new deal.
The workers queried the 49 per cent equity ceded to the British carrier, which they argue is rather on the high side, even when the country has already contributed its lucrative international routes that have a ready-made market.
Analysts cited the example of Kenya Airways, which is a case study of a successful national airline privatisation in Africa where KLM Dutch Airline was allowed to acquire only 26 per cent equity as strategic investor.
On the criticism that 49 percent equity conceded to Virgin is on the high side, Adebanjo said it was to offer the strategic partners incentive, adding that it would be difficult to persuade investors to come on board without that leverage.
As speculations go round that some financial institutions had been asked by Branson's agents to source for fund to finance part of its $24.5 million equity in the new flag carrier even before the official announcement, industry sources are concerned that the core investor's contribution may not be Foreign Direct Investment (FDI).
Said a source: " If the 49 per cent is not through FDI, then the new carrier and indeed. Nigeria, may be short-changed. The best option is capital inflow in cash from abroad, as the new airline can then request for competitive bids for aircraft leases. Management and technology can be competitively acquired. Otherwise, aircraft leases and value may be grossly inflated."
The Guardian learnt that what swayed the FEC in favour of the deal was the offer of FDI, which has been the core of this administration's policy.
The source said some government officials were concerned about the October 1 take off date, which was barely a month away for a company that is yet to be incorporated, secure institutional investors and obtain necessary licences.
Yuguda, however, allayed the fear with the suggestion that the government would underwrite the 51 percent and recover its money later.
Industry analysts are, however, not comfortable with the arrangement, which they argue is overtly ambitious and pre-empts the process even as it smacks of a predetermined strategy to justify the use of public fund to prop a foreign carrier.
Virgin currently utilises three of Nigeria Airways' frequencies out of Lagos in addition to its four granted under the Bilateral Air Service Agreement (BASA) between Nigeria and United Kingdom (UK).
Nigeria Airways workers had criticised the policy contradiction of the government that vowed not to put a kobo in Nigeria Airways nor guarantee a loan to it but would use public money to fund a supposedly private led and funded flag carrier.
The choice of the name Virgin Nigeria, as not being appropriate for an airline that would be playing the role of national carrier.
Some industry stakeholders have, however, commended the government for at least taking a decision but cautioned that it must be well managed to ensure that Nigeria's interest is not compromised.
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