Assets Management Company of Nigeria (AMCON) has acquired a stake in the debt-ridden telecoms company Starcomms.
As part of the deal with Capcom, the special purpose vehicle through which AMCON will have a share of Starcomms, both Helios Investment Partners, an African-focused private investment firm and AMCON, would acquire equity stakes in Starcomms derived from the Capcom shareholding on completion of the transaction.
Addressing shareholders in Abuja at a court-ordered meeting on the acquisition, the interim Chief Excutive Officer of Starcomms Mr Olusola Oladokun said the acquisition became necessary because “Starcomms is facing operational and financial challenges on account of the shifting competitive landscape in Nigeria’s telecommunications industry.”
The recent challenges, he added, “have resulted in the company generating operational losses and functioning with unsustainably high levels of debt and the reduction of weekly cash collections to unsustainable low levels.”
As a result, the board decided to accept a proposal from Capcom to inject the much-needed capital and assets into Starcomms to facilitate a strategic turnaround and improve the competitive position of the company.
To facilitate the investment, Starcomms’ shareholders endorsed a Scheme of Arrangement “to reorganise Starcomms’ share capital, subsequent to which the company will undertake the private placement for the subscription of new shares by Capcom.”
Oladokun explained that Capcom is registered in Mauritius, saying the company was established by MBC, a private trust. “MBC has investment agreements in place with a number of investors, including Oldonyo Laro Estate limited, Helios Investment Partners and AMCON.”
The commercial understanding that was captured in the investment agreement between Starcomms and Capcom, stipulates that the placing will entail Capcom contributing the investment consideration to Starcomms via the placing in exchange for such number of shares as will result in Capcom owning90.5 per cent of Starcomms’ share capital post-placing, he said.
Starcomms has 6,966,963,378 shares in issue, thus implementing the placing without reorganising Starcomms’ share capital. The scheme would require that Starcomms issues 62 billion additional ordinary shares to Capcom under the placing.
However, given the significant cost and time implications of increasing the company’s authorised share capital and issuing such a large quantum of shares, Oladokun and other members of the Starcomms’ Board, “proposed that the share capital of Starcomms be reorganised through a restructuring of the issued share capital of Starcomms, that will entail the transfer of the nominal value of the scheme shares from the share capital account to the Capital Redemption Reserve Account.”
As a result, “shareholders of Starcomms’ ordinary share so restructured, shall retain one ordinary share with a nominal value of 50 kobo in Starcomms, credited as fully paid up for every 100 ordinary shares with a nominal value of 50 kobo each previously held.”
Capcom will contribute assets, cash and other things. Capcom will also pay off Starcomms’ outstanding NCC obligations up to $13million in exchange for receiving the subscription shares and conditional share subscription rights.
The investment assets that Capcom will bring to the table “comprise the entire issued share capital of Cyancom and HIP oils, which include the spectrum of MTS and the CDMA business of Multi-Links. The firm has negotiated conditional sale and purchase agreement with the vendors of the assets, namely AMCON and Helios Towers,” Oladokun said.
Capcom intends to use a portion of the subscription shares it receives after placement to part-settle the consideration due to AMCON and Helios Towers for the investment assets. At completion, these assets will be transferred from Capcom to Starcomms via share transfer.
Capcom will inject the investment cash into Starcomms to finance the integration of the spectrum of MTS and the CDMA business of Multi-Links, meet on-going short term losses in the business, pay key trade creditors and drive the new business plan.
As part of the separate and subsequent underwritten Rights Issue, Starcomms is expected to receive a further $20million from shareholders, which will also be applied towards executing the company’s new business plan.
Capcom proposes to raise the required funding for the proposed transaction from some sources, including $50million private placement of new equity in Capcom, in connection with which it had signed a backstop underwriting agreement with MBC, a private trust; debt financing from Afrexim and Diamond Bank Plc; and the sale of certain assets in Multi-Links to Suburban, a major independent supplier of Internet protocol backbone services in Nigeria.
Starcomms shares held by members of the Board would be subject to the scheme, but Capcom said it attached great importance to the skills and experience of the employees of Starcomms and expects them to play a significant role in implementing the business plan.
To this end, Capcom has assured the Board of Directors of Starcomms that the employment rights and pension rights of Starcomms employees would be safeguarded on completion of the scheme and subsequent private placement.
