Busted bank deal shows Nigeria is tough for investors

While the Nigerian government is outwardly pro-investment, in practice foreign investors don’t always receive a warm welcome, say analysts

Central Bank of Nigeria's headquarters in Abuja, Nigeria. The country does not have a great reputation for welcoming foreign investors. Afolabi Sotunde/Reuters

It looked like a done deal between a Nigerian bank in need of funding and a US private-equity firm keen to stump up the cash.

But even after contracts were signed it fell apart, showing how tough the African nation can be for investors.

Milost Global said it penned an agreement in November to provide $1 billion of financing that would’ve given it 60 per cent of Unity Bank. Milost has now backed off, citing an unidentified “politically connected” shareholder who threatened the investor’s Nigerian interests if it pursues the deal. The Lagos-based lender has denied that the documents were binding and said it had nothing to do with the threats, according to Bloomberg.

The transaction failed as President Muhammadu Buhari wants to make it easier for businesses to operate in Africa’s most populous nation, which ranks 145th out of 190 countries in the World Bank’s ease of Doing Business index. While Milost is still weighing other opportunities in Nigeria, it sends a warning to other investors.

“The message we get from clients is that even though the Nigerian government is outwardly pro-investment, in practice foreign investors don’t always receive a warm welcome,” said Matthew Kindinger, an analyst at Washington-based Frontier Strategy Group, which advises multinational companies on their business strategies in emerging markets. “Nigeria is a very challenging environment. You get a lot of problems that you wouldn’t elsewhere.”

And other companies have also had their troubles. In January, InterContinental Hotels Group said it was pulling out of the country after a disagreement with local partners over how to get a 358-room Lagos property out of receivership.

In 2009, Richard Branson’s Virgin Atlantic Airways sold its stake in a Nigerian airline after a dispute that saw him complain of the government using “mafioso tactics” and "orchestrating negative propaganda", the BBC reported at the time.

Last month, Royal Dutch Shell filed a criminal complaint against a former senior employee over suspected bribes in the $390 million sale of an oilfield in Nigeria, where the company is already under investigation over a separate deal.

Dutch prosecutors confirmed they had received the complaint against Peter Robinson, a former vice president for sub-Saharan Africa. They said it would be included in an ongoing investigation into Shell and Italy's Eni over the acquisition of a different Nigerian oilfield, known as OPL 245, Reuters reported.

Shell and Eni deny any wrongdoing related to OPL 245, in which Mr Robinson is being prosecuted. A spokesman for Anglo-Dutch Shell said the two cases were unrelated.

Chiara Padovani, a lawyer representing Mr Robinson, said he denied any allegations of misconduct. Mr Robinson has not been contacted by Dutch authorities about any such complaint, she added on March 28.

"Our client regrets that an issue between him and his former employer has been drawn into the public domain. He has not been informed of the details of Shell's complaint against him," Ms Padovani said.

Shell said an internal investigation had found that Mr Robinson may have committed a crime during the sale of an onshore oilfield, Oil Mining Lease (OML) 42, to local company Neconde Energy in February 2011.

"We suspect a crime may have been committed by our former employee, Peter Robinson, against Shell in relation to the sale process for Oil Mining Lease (OML) 42 in Nigeria in 2011," a Shell spokesman said.

"We have filed a criminal complaint with the Dutch authorities and are considering other steps we could take."

Neconde Energy said it purchased its stake in the field following a competitive bidding round and made no payments to Mr Robinson, Shell or other companies in order to facilitate it.

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"Neconde completely denies any allegation or suspicion of kickback for the acquisition of its interest in OML 42 and the statement credited to Shell suggesting the contrary is untrue and most unfortunate," the company said.

Mr Robinson is one of a number of Shell employees being prosecuted in Milan over OPL 245, a case spanning several countries that involves Nigerian government officials and oil executives in a $1.3bn sale of the offshore field.

Shell, the largest international oil producer in Nigeria, was looking methodically at other transactions in which Mr Robinson was involved, a source said.

Back at Unity Bank, formed 12 years ago out of the merger of nine banks and which last year missed a recapitalization deadline set by regulators, the lender said last week that it’s typical for documents to be exchanged between negotiating parties and the papers it signed only suggested the “terms and conditions on which Milost was planning to consider its possible participation in the capital funding of the bank”.

“It is for the Securities and Exchange Commission and the Nigerian Stock Exchange to investigate the truth,” Milost chief executive Kim Freeman told Bloomberg on Thursday. “They signed the term sheet and the commitment agreement. They are denying everything because they have been caught off guard” and failed to disclose the transaction to shareholders and the stock exchange, he said.

Milost, which was founded in 2015 according to its LinkedIn profile, has $25bn in committed capital with interests spanning from cannabis to mining and oil, according to its website.

It’s not the first time the firm has come under the spotlight. South African construction company WG Wearne on February 14 said that Milost failed to fulfill its funding obligations and that the builder will terminate their agreement for up to $25 million in debt financing if the terms aren’t met.

The WG Wearne deal is still on and the company has made two draw-downs already on the facility, said Solly Asibey, Milost’s chief investment partner. WG Wearne’s chief financial officer Marius Bierman didn’t immediately return a message left at its office seeking comment.

“It would have been great for the banking sector, Unity Bank in particular, if this deal was true and it had gone through,” said Lekan Olabode, a bank analyst at Vetiva Capital Management in Lagos. “Now that it didn’t, Unity Bank is back to where it was and will continue to search for where its funding will come from.”

Other bank deals have also been hard to get over the line. Johannesburg-based FirstRand, Africa’s largest bank by market value, walked away from buying Lagos-based Sterling Bankin 2011 because it said the asking price was too high.

Dithering by policymakers over the handling of a currency peg has also cost inflows into the country, with a foreign-exchange shortage only easing after the central bank introduced a weaker exchange rate for investors in April last year. Foreign-direct investment declined for three straight years to $982m in 2017, according to the National Bureau of Statistics, the lowest since at least 2012.

Milost’s $1.1bn purchase of Primewaterview Holdings Nigeria, a real estate company, and its pending $250m investment in Resort Savings & Loans account for almost all Nigerian mergers and acquisitions. Deals in the country this year amount to $1.4bn, compared with $2.7bn for all of 2017, according to data compiled by Bloomberg.

The country’s population of about 180 million and an economic recovery from 2016’s slide means Nigeria is “too big to ignore", said Frontier Strategy’s Kindinger.

“A lot of multinationals have it top of their list for Africa. It will always remain a priority for those interested in Africa, even for all its difficulties.”