NIGERIA TRANSCORP'S PURCHASE OF NITEL IN JEOPARDY

1. Summary. Nigeria's Bureau of Public Enterprises (BPE)
sold on July 3 a 75% stake in the state-owned Nigerian
Telecommunications (NITEL) Limited and its M-Tel subsidiary
to Nigeria's Transcorp for $750 million in a negotiated
sales process. Transcorp failed to meets its terms of
purchase, including to pay the GON $500 million within seven
working days, but it paid $75 million and received a 60-day
extension for the balance. Other issues still threaten this
transaction. End summary.



2. Nigeria's Bureau of Public Enterprises (BPE) sold on July
3 a 75% stake in the state-owned Nigerian Telecommunications
(NITEL) Limited and its M-Tel cellular subsidiary to
Nigeria's Transcorp for $750 million in a negotiated sale.
Transcorp failed to meets its terms of purchase, including
to pay the BPE $500 million within seven working days.
Transcorp managed to pay $75 million to the BPE by July 14;
the Government of Nigeria (GON) granted it 60 more days to
pay the balance of $675 million.



3. Disagreement continued over which NITEL liabilities
Transcorp would assume under the share-purchase agreement
drafted by the BPE, the press reported. The lack of a final
share-purchase agreement made it difficult for Transcorp to
obtain bank loans to buy NITEL within the seven days
originally specified by the purchase accord.



4. The press reported July 15 that Transcorp might seek to
reduce its purchase of NITEL from 75% (made up of 51% to
Transcorp and 24% to an unnamed "foreign technical
partner"), to 38% to Transcorp and 37% to the partner. In
the meantime, Transcorp is "buying time" to raise the
required amount.



5. An Embassy Abuja telecom contact said on July 14 that the
deal could be endangered for two additional reasons.
Etisalat demanded, as a non-negotiable condition, majority
control of NITEL in return for providing the capital for
NITEL's purchase. Transcorp was not willing to accept this
condition. Transcorp was considering canceling the deal
outright because of concern that the transaction might not
survive the scrutiny of the Obasanjo administration's
successor.

Comment


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6. The status of the deal is unclear, but the situation is
deeply embarrassing to the GON. With Transcorp's failure to
meet the down payment for NITEL's purchase, the GON's
attempts to sell NITEL have grown even more complicated.
The government risks a significant loss of revenues and
prestige over its apparent inability to sell NITEL, even by
negotiated sale to one preferred bidder. It is clear that
Transcorp, which the GON hoped would evolve rapidly into a
mega-corporation, pursued this purchase without financing in
place. This further calls into question Transcorp's
managerial expertise.
FUREY