The Math doesn’t add up with Milost

Imagine deciding against buying a brand new car in favour of buying a rickety old car, which is of the same brand and model as the new car you could have got with the same amount. Or even less.

That analogy applies to the dealings of Milost Global Inc, which after a fact check on its announced investments in some Nigerian companies, turned out the New-York based private equity firm, will be investing unrealistic amounts in two Nigerian firms, and as such the deals may never actually happen. That could come at a huge loss for retail investors that have bought these stocks on the back of a supposedly game-changing capital injection.

The first of the two firms is Japaul Oil & Maritime Services Plc, an oil-services company, which said last month it signed an agreement with Milost for $350 million in shares and loans for business expansion.

It was reported that Milost will invest $250 million in equity and add another $100 million in convertible loans.
At the time of announcement, February 20, Japaul’s share price was 35 kobo and it had 6.26 billion shares outstanding.
A $250 million (N90 billion) equity investment would imply paying N14 per share, a huge premium by any standard.

“Clearly, something doesn’t add up and someone is getting rich on this falsehood,” one source said, pointing to the dramatic rally in Japaul’s share price since the Milost investment was first announced.
Japaul reported total assets of N27 billion, total liabilities of N51 billion and a net loss of N2billion in the 3rd quarter of 2017.
The firm has gone on a 177 percent share price rally since the deal was announced, trading at N0.97 Friday March 09, according to Bloomberg data.
The oil and gas services company closed as the highest gainer on the stock exchange for a second straight week, jumping 53.9 percent in the week ended March 9.
“Private Equity firms rarely go for control deals in Nigeria- deals where they acquire over 50% of a company. In cases where they do, they are reluctant to go as high as 95 percent but Milost is doing deals that are even above 100 percent,” another market source speaking anonymously due to the sensitivity of the matter told BusinessDay.

On calling a New-York phone number available on Milost’s website to ask for comment, the lady who answered the phone disconnected the call, when asked questions seeking clarity over Milost’s investment strategy, and two subsequent calls to the same number went unanswered.
“The unfounded nature of the Japaul deal suggests there is zero possibility of the transaction happening,” one source familiar with the matter told BusinessDay.
“The Resort deal is no different and it leaves the door open to question the financial standing of the company (Milost),” the source who craved anonymity said.

In its latest deal yet, Milost’s announced to invest some $250 million (N90 billion at N360/$) in financial services company, Resort savings and loans- which has a market capitalisation of N5.6 billion, according to data on the Nigerian Stock Exchange (NSE).
Resort, in a statement published on the NSE last week, said the financing comprises $100 million (N36 billion) equity and $150 million (N54 billion) debt.
Given that Resort’s share price is only 50 kobo and it has 11 billion outstanding shares, Milost’s N36 billion equity injection works out to paying six times more for each share at current market value of N3 per share.
The company’s motivation to incur this premium is questionable, especially since Resort Savings and Loans has not released a financial statement since the 3rd quarter of 2015 when it reported net profits of N34.2 million on revenues of N1 billion and shareholder funds of N2.92 billion.
Total assets for the mortgage provider for the period came in at N10.1 billion.

Resort was not readily available for comment at the time of filing this report.

Chances are that a good number of retail investors in the Nigerian stock market may get their fingers burnt if they buy either of both shares in reaction to the news that they are getting massive capital injections, only to find out it was probably a pump and dump strategy and the investments never materialised.

Milost’s biggest announced deal yet is the $1.1 billion (N360 billion) acquisition of real-estate firm, Primewaterview holdings.

But even that deal has its faults, sources claim, as the said firm lacks the requisite assets to command an acquisition of that size.
A phone call made by BusinessDay to the number found on Primewaterview’s website was not answered when contacted at around 6:30pm on Friday.
The real estate company has completed about 741 housing projects, predominantly three-bedroom apartments across Lekki and Oniru, as deduced from its website.
For all its swashbuckling outlay which come to around $1.7 billion (N612 billion), Milost is relatively unheard of among private equity players who question the ingenuity of some of these investments.
“No one knows anything about them,” a source familiar with the matter said, projecting the views of colleagues in the private equity sector.
“What baffles us is how they have been able to deploy close to $2bn in such a short time and the illogical patterns of some of those investments,” the person who did not want his name in print told BusinessDay.
BusinessDay sources at the Central bank couldn’t immediately confirm if Milost obtained a Certificate of Capital Importation (CCI) for its announced investments.
A CCI provides statutory evidence of capital inflow into a Nigerian company.
CCI’s are Central Bank of Nigeria (CBN) certificates issued by banks.
Speaking about the Resort bank deal in a statement Kim Freeman, Managing Partner & CEO of Milost Global said the deal is part of their recent trip in Nigeria and, “We are very pleased to have executed the term sheet and commitment letter with Resort.”
“We believe the impressive Resort team led by Olayemi Rabiu and Senator Fajinmi were very enthusiastic and will do a great job growing the Resort business which will enable more home ownership in Nigeria,” Freeman said.
Senior Partner & CIO of Milost Global Inc, Solly S. Asibey also noted that “the investment ties in very well with our vertical integration strategy.”
“Resort has proven itself to be amongst the leaders in the provision of mortgage Banking in Nigeria, and in tandem with Milost, they will gain more traction within this market and beyond. We are therefore very excited about this venture moving forward,” Asibety said.
As deduced from its website, Milost Global was founded by Mandla J Gwandiso in 2015 and is headquartered in New York City, with more than $25 billion in committed capital.
Gwadiso also serves as the Chief Executive Officer and Chairman of the Board of Directors of Precise Acquisition, Inc.
Between February 2009 and February 2013, he was an independent consultant to Sichuan Hanlong Group Co., Ltd where he was the Lead Advisor.
From March 2013 to November 2015, he served as the President & Chief Executive Officer of Sigur Capital Inc.

 

LOLADE AKINMURELE