BEHIND THE FIGURES
By Ijeoma Nwogwugwu
Mr. Wale Tinubu, the chief executive of Oando Plc, and his deputy, Mofe Boyo, must be squirming uncomfortably in their underwear. Despite their attempt to turn the consequential but partial award of the London Court of International Arbitration (LCIA) on its head, it was abundantly clear that the declaration of the arbitration tribunal consisting of Mr. Harry Matovu, QC, Prof. Marco Frigessi di Rattalma and Mr. David Mildon, QC, was unequivocal in its pronouncement that Ocean and Oil Development Partners, a firm registered in the British Virgin Islands (OODP BVI), is indebted to Ansbury Investments Inc. to the tune of $600 million while Whitmore Asset Management Limited is indebted to the Ansbury to the tune of $80 million. Both sums make up the shareholder loans given by Ansbury to OODP BVI and Whitmore for the acquisition and exploitation of ConocoPhillips’ upstream assets in Nigeria.
For the benefit of readers, Ansbury, a single purpose investment vehicle incorporated in Panama and owned by the family trusts set up by an Italian-Nigerian businessman, Mr. Gabriele Volpi, entered into a contractual relationship with Whitmore, a BVI registered company owned by Tinubu and Boyo, on June 17, 2013. The objective was to set up a joint venture to raise funds for the acquisition of ConocoPhillips’ upstream assets in Nigeria valued at $1.5 billion. The contractual relationship between Ansbury and Whitmore led to the incorporation of a joint venture vehicle, OODP BVI. By way of shareholder loans provided solely by Ansbury to OODP BVI in the sum of $600 million and to Whitmore in the sum of $80 million, the equity in the venture (OODP BVI) was agreed to be held as to approximately 60% by Ansbury and approximately 40% by Whitmore. The JV OODP BVI itself owns all but one of the shares (99.99%) in OODP Nigeria Limited, which in itself owns 55.96% of Oando. Other investors own the balance of 44.04% of Oando.
The agreement between Ansbury and Whitmore provided for the repayment of the shareholder loans on January 1, 2018. However, Ansbury, perhaps, fearful of the mismanagement of Oando Plc and the loss of the loans that it had extended to Whitmore and OODP BVI which owns 99.99% of OODP Nigeria which also owns 55.96% of Oando Plc, prematurely demanded for the repayment of its shareholder loans on March 11, 2017. The premature demand, plus claims by Whitmore that there existed an unsigned Fourth Amended and Restated Shareholders’ Agreement that provides for the transfer of 20% of the shares in OODP BVI to Whitmore, such that that the parties’ respective equity shares in OODP BVI would switch to 60% for Whitmore and 40% for Ansbury; and an alleged oral agreement between the parties to extend the repayment of the shareholder loans to January 1, 2020, form the nucleus of the dispute between Volpi and Tinubu-Boyo.
Having sifted through voluminous documents provided by Ansbury and Whitmore and listened to their claims and counter-claims, the arbitration tribunal was unambiguous when it declared on July 6, 2018 that the Third Shareholders’ Agreement (SHA) between the parties was binding, the Fourth SHA never became effective, Whitmore was in breach of the repayment obligations stated in the First Loan Agreement for $80 million, the alleged oral agreement to switch the parties’ respective shareholding in OODP BVI was not binding on the parties, and Ansbury was and remains estopped from claiming repayment of the any of the loans prior to January 1, 2018. The tribunal further held that OODP BVI is presently indebted to Ansbury in the total principal sum of $600 million, being $130 million in respect of the initial loans and $470 million in respect of the subsequent loans, which sums are overdue and owing. It also declared that Whitmore is presently indebted to Ansbury in the total principal sum of $80 million in respect of the loan made under the First Loan Agreement. The tribunal also reserved its jurisdiction over all issues as to orders for repayment by Whitmore and OODP BVI of the loans due and owing from them, interest and costs.
Despite the clear-cut ruling, Oando, through its chief compliance officer and company secretary, Ms. Ayotola Jagun, was quick to assert that based on the shareholding structure of OODP BVI, Volpi would in fact be paying himself $360 million. How? There could be nothing further from the truth. First and foremost, there is a clear distinction between the share capital injected into a company by an investor in exchange for shares in the company and the injection of a shareholder loan to a company, which is also treated as equity. While the former is expected to be held by the shareholder in perpetuity and may be increased or reduced through fresh capital injections or by sale of shares, the latter is expected to be repaid with low or deferred interest payments. There was nothing in the shareholders’ agreement that suggested that the injection of $600 million by Ansbury into OODP BVI and $80 million into Whitmore were anything other than loans.
It must be added that the shareholder loans provided by Ansbury were the ideal debt-financing structure in managing the leveraged buyout of ConocoPhillips’ upstream assets and should not have been trifled with by Tinubu and Boyo. Had Volpi not come to their aid, it would have been next to impossible for them to achieve their dream of turning Oando into a full-fledged integrated energy firm.
Second, it will be foolhardy for Oando to continue to maintain that it is not indebted to Ansbury or that the latter is not a shareholder in Oando. Insofar as OODP BVI and Whitmore remain indebted to Ansbury, there is nothing stopping Volpi’s firm from converting its loans into equity, and assuming full control of OODP BVI. Should this happen, Tinubu and Boyo would have no direct or indirect claim on Oando and would have to kiss the company goodbye. Even if we were to buy the argument by Oando that Ansbury is not a shareholder in the Nigerian energy firm with dual listing on the Nigerian and Johannesburg Stock Exchanges, the same principle would ring true for Whitmore – jointly owned by Tinubu and Boyo. Indeed the view in the market is that Tinubu and Boyo, having long sold their residual direct interests in Oando, may indeed be the real interlopers.
Another concern should be the final award of the London tribunal, which is yet to determine the payment terms, timeframe, the interest payments on the unpaid loans, and costs. Having reserved its jurisdiction to order the repayment of the loans owed Ansbury, Tinubu and Boyo have no option than to scurry to the table and agree on a repayment plan with Volpi. As things stand, it is not just the ownership of Oando that is at stake, but all their personal assets in the United Kingdom, Nigeria and in other jurisdictions that could be seized to repay the debt.
Add to this the forensic audit of Oando, which the company in cahoots with the Securities and Exchange Commission (SEC) and the Ministry of Finance, have attempted to sweep under the carpet, it will take a miracle for Tinubu and Boyo to wriggle out of their ordeal unscathed.
Requiem for Nigeria Air
For those eager to celebrate the launch of a national carrier, let me warn that the stunt pulled off last week by the federal government through its transportation minister responsible for aviation, Mr. Hadi Sirika, at the Farnborough Airshow in England, was nothing more than a statement of intent. It was a cleverly choreographed political sound bite, complete with photoshopped images of an aircraft depicting Nigerian livery. It was targeted at fooling the public into believing that the administration was sticking to its campaign promise to establish a carrier flying the Nigerian flag.
What was sorely missing from that presentation was the business case for the so-called airline to be named Nigeria Air, investors that had indicated interest in taking a stake in the airline, a lease/procurement plan with aircraft manufacturers and lessors for the acquisition of aircraft, management and technical services agreements with a prospective operator for the airline, a realisable blueprint for the actualisation of an airline hub possibly in Lagos, targeting first the West African sub-region, and a plan for the establishment of a maintenance, repair and overhaul (MRO) facility as an additional revenue stream for the proposed airline.
It must be mentioned that at the presentation at Farnborough, Sirika’s audience was made up solely of officials of his ministry and the regulatory agencies in the Nigerian aviation sector. Not a single prospective investor, aircraft leasing firm or manufacturer, or advisory firm was in sight. The sole foreigner at the Farnborough event was the cameraman hired by the transportation ministry.
At the very minimum, the so-called advisors led by Airline Management Group (AMG), which the federal government appointed a year ago at a princely fee of N1.5 million, should have been at the airshow to present their outline business cases for the airline, MRO, aerotropolis, and so on. AMG was named the lead in the advisory consortium after Lufthansa Consulting pulled out five months ago. Citing conflict of interest as one of the reasons for Lufthansa’s withdrawal, Sirika added last February that his ministry and the German firm were unable to agree on the contract terms for the advisory services, requiring an upfront payment of 75% of the contract fees that would have been payable in euros into an escrow account with a foreign bank. But I digress.
Sirika clearly went to the airshow unprepared. He also failed to address the challenging Nigerian aviation environment characterised by under-capitalised airlines, safety concerns, jet fuel shortages, an unattractive fiscal regime, the absence of world-class aviation infrastructure, and shoddy regulation. Even outside Nigeria, the minister was unmindful of the litany of unprofitable, struggling airlines on the African continent and beyond. Examples abound of defunct, bankrupt and unprofitable national and government-owned carriers ranging from Sabena, Swissair, Alitalia, Iberia, British Airways (pre-privatisation), Air Afrique, South African Airways, EgyptAir to Kenya Airways.
It would be futile using Ethiopian Airways and Emirates Airline as examples of state-owned airlines that have succeeded. They operate unique models that are difficult to replicate. Whereas Ethiopian Airways has a government-protected monopoly on its domestic routes, has benefitted from economic growth and stability averaging 10% over the past decade, provides a plethora of services including maintenance, catering and training to other airlines, boasts a young and modern fleet, purportedly pays zero landing fees at Ethiopian airports, and controls a large chunk of the air traffic in Africa; Emirates, supported by the government of Dubai’s investment arm, has been accused by its global competitors of benefitting from hidden state subsidies, maintaining a too cozy relationship with Dubai’s airport authority and its aviation regulator – both of which are state-owned entities – and benefitting from reduced borrowing costs by taking advantage of its government shareholder’s sovereign borrower status. But the allegations against Emirates have been debunked, with the airline pointing to the bailouts provided by the United States government to US-based airlines as a substantial form of state assistance.
What was more bemusing was Sirika’s declaration that Nigeria Air would fly on 162 routes! How was this predetermined without the input of investors? Shouldn’t that be the responsibility of the advisers and investors to determine the viability of routes? Rather than dissipate energy on the establishment of a new national carrier that will never see the light of day, Sirika should focus on the low hanging fruit right in front of him. For all intents and purposes, Arik Air, Aero Contractors and the remnants of the defunct Air Nigeria (successor of Virgin Nigeria) currently belong to the Nigerian government. With the still operational Arik and Aero Contractors under the control of the Asset Management Corporation of Nigeria (AMCON), the latter, with the assistance of reputable international consultants, should begin the process of underwriting the liabilities of both airlines, hiving off and disposing of their non-core assets, and merging the airlines into one entity. After the corporate restructuring process, which must include a share restructuring strategy that leaves the owners of the legacy airlines with some minority stake in the emerging entity, the new airline should be sold to a core strategic investor capable of injecting fresh capital into it and expanding its fleet and operations.
This avenue available to Sirika is a surer bet of getting an airline with a Nigerian identity off the ground. He needs to bury his ill-fated attempt to start an airline from scratch. The Nigerian government does not need a 5% stake in any airline, nor does it need to provide a take off grant of $300 million. Instead, more resources should be deployed in improving airport infrastructure and the concession of Nigeria’s viable airports to the private sector. As it stands, the Federal Airports Authority of Nigeria (FAAN) has proven to be a basket case. Like the phantom Nigeria Air, it needs to be buried and confined to the dustbins of history.