Transcorp Faces Bleak Future

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Transcorp Hilton Abuja

Transcorp Hilton Abuja

Nigeria’s Transnational Corporation (Transcorp) and its shareholders are facing hard times following a gaping hole in its books occasioned by an accumulated N20 billion loss.

The loss arose from the interests paid to the five banks that facilitated the acquisition of NITEL, the troubled Nigerian national telecommunications carrier, and MTEL, its mobile arm, in 2006.  What this means is that its shareholders may not get any return on their investments in the next two to four years even if Transcorp’s current profit level of N4.2 billion is maintained. 

In 2006, to prosecute the acquisition of the telecom firm, Transcorp secured a $500 million facility from five banks, as follows:

•    UBA $175 million,
•    Union Bank $150 million,
•    Intercontinental Bank $50 million,
•    Wema Bank $100 million, and
•    Skye bank $25 million. 

Transcorp was clandestinely formed in 2006 by Olusegun Obasanjo, Nigeria’s former president, through the assemblage of some rich businessmen, the idea being to replicate the likes of Microsoft of the United States as well as Hyundai and Samsung, both of South Korea. Its operation was to range from the hospitality business to the oil and gas sector, amongst other facets of the economy.

In less than a year in operation, it acquired 51 percent majority stakes in both Nicon Hilton hotel (now Transcorp Hilton), as well as NITEL AND Mtel. It also, in defiance to laid down rules, went to the capital market on December 2006 to raise N60 billion, but it got only N22 billion. The government has since June 2, 2009, however, revoked the NITEL sale due to the corporation’s inability to turn the telecom firm around.

Transcorp has reclaimed its oil blocks and has since signed a farm-in agreement with SAC-Oil and its Nigerian partner, EER, ceding 40 percent to the duo. The corporation realized about $30 million from this and the proceeds added up significantly to its 2010 account which showed an increased profit from N1.2 billion to N5.4 billion (representing about 339 percent).

This however brought no dividend to the shareholders and will not, even if it makes a profit in the current year, unless the losses are cleaned up.

This reality raises questions about whether Transcorp, which was a start-up business and only one year old when the loan was procured, was actually in a position to receive such an amount of credit at that time.

Furthermore, the banks, it was learnt, did not do a proper credit and risk analysis, and may have imposed the facility on Transcorp because of what they stood to get from the arrangement.  It is noteworthy that at the September 15 Annual General Meeting AGM of Transcorp, shareholders who wanted to raise the issue of the banks’ stifling business model, were tactically disallowed.

Transcorp

Transcorp

The shareholders described this as an abuse of corporate governance ethics by the banks whose managing directors sat on the board of Transcorp and disbursed the loan without proper analysis of the risk to the investment.

What observers’ fear could further worsen Transcorp’s current situation and dampen its outlook in the future is the emergence of Tony Elumelu as its new chairman. Elumelu, who was formerly the Group Managing Director of UBA Plc, got the topmost position of the corporation through the acquisition of 2.5 billion shares by Heirs Foundation, a company through which he remains visible in the corporate world.

The acquisition gives Elumelu almost 10 percent shares of the corporation. His antecedents in UBA and the fact that the bank collected the highest of the N20 billion interests is now a worry to shareholders and some board members.

He is expected to drive Transcorp into profitability with the new team being assembled to assist him.

Elumelu is known for his shrewd business calculations which have brought successes to UBA and made it very visible on Nigeria’s financial landscape. The fear, however, is that those achievements are pyrrhic.

For instance, UBA is a strong player in the Nigerian banking sector but the records at the Financial Reporting Council of Nigeria, formerly the Nigerian Accounting Standard Board (NASB) show that UBA’s 2007 account was fingered for wrong accounting for goodwill of N14.085 billion which is a violation of section 21(2) of Companies and Allied Market Act (CAMA) 1990. 
 
Other infractions committed by the bank included wrong accounting treatment of bad loans of N24.44 billion; inappropriate treatment of merger costs of N4.3433 billion; and failure to effect other agreed upon corrections in financial statements.
 
These forced the agency to suspend the account and ordered UBA to withdraw it from the system. UBA, in that year, paid at least N14 million fines to NASB to get the suspension lifted. That also made it the third year of paying fines to the agency. It also paid fines in 2005 and 2006.

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