Milost’s Equity Subscription Agreement puts SEC’s oversight in spotlight

Nigeria’s apex capital market regulator needs to wake up to its responsibility following what appears a classic “pump and dump” strategy initiated in the stock market by Milost Global Inc, various analysts BusinessDay spoke to said.
Securities and Exchange Commission (SEC) has as part of its roles to protect investors, particularly the retail investors who have been reeling from the impact of the purported US-based private equity firm on the stock of one of the Nigerian companies to be linked with Milost, Japaul Oil and Maritime services company.
Though, SEC said it is monitoring developments and investigating affected parties which will be followed by sanctions, industry players are worried by the regulator’s docile reaction.
“The buck stops with the SEC but it looks as though they are not playing their role and are not asking the right questions about Milost,” a source familiar with the matter said.
“The statement issued by Milost explaining the MESA is fraught with factual inconsistencies and rather than provide clarity of how it works, confused me the more,” the source said of Milost’s signature investment strategy in the Nigerian companies it has showed interest in, a scheme called the “Milost Equity Subscription Agreement.”
The MESA instrument is aimed at funding “undervalued publicly quoted companies all around the world and is a hybrid of debt and equity,” Milost said in a statement Monday.
BusinessDay was made to understand that Milost gives a company cash in exchange for equity at a 50 percent premium to the market price of the stock. Milost then agrees with the company that if the share price drops below the 50 percent premium, the latter is liable to pay the price difference to Milost.
Confusingly, the company is not required to pay cash but issue more shares to Milost as compensation.
The company will also pay Milost 10% – 20% discount to the 5-days Volume Weighted Average Price (VWAP) as a penalty.
An email to Milost seeking better clarification about MESA went unanswered. A BusinessDay reporter currently in New York called Milosts listed phone number three times to request an appointment .
Each time a lady picked the call and said she was connecting BusinessDay with someone to talk to.

But as soon as she connects, the phone keeps ringing then goes into a voice mail.

BusinessDay also made enquiries from two different people in New York, one who works in a big private equity firm and another, a journalist who reports for a leading business news platform, none of them was aware of Milost Global Inc., which says it is headquartered in New York and has more than $25 billion in committed capital, according to information from its website.


“It looks like a classic Pump and Dump, whereby the owners of the shares to be sold to Milost pump the share price of the stock and when it rallies they split the gains with Milost,” one source said on condition of anonymity.
“That’s why they are going for penny stocks and avoiding blue chip stocks with liquidity that is difficult to pump,” the source said.
According to Milost, the cash given to the company as equity can only be used as working capital while debt can only be used to acquire cash-generating assets. Milost called MESA “the Messiah of growth and the impartial arbiter of stock and value disparities.”
According to Mandla J. Gwadiso, also known as MJ, who founded Milost Global Incorporated in 2015 and serves as its Managing Partner, the idea behind MESA is that they help a company cash in on its intrinsic value rather than its market value, assuming that the former is higher than the latter.
For example, a company’s stock can be trading at N5 per share even though the company may believe it is actually worth N7. They will then issue equity at the price of the N7 instead of N5, hoping that this will eventually get the market to price it at its intrinsic value.
“We do not know for sure how this instrument will work in Nigeria especially for companies with significant minority shareholdings,” one analyst familiar with the matter said.
“Does the Nigerian investment law also allow for an equity holder of a quoted company to get compensation for loss of value of the stock at the expense of other shareholders? Also, will the shares issued to Milost come from the unauthorized share capital or will it come from existing shares?” the analysts asked further.
Milost Global has taken the investing community off-guard with its announcement that it intends to invest billions of naira in companies that had been either left for dead or close to being dead.
Critics question their investment capabilities and question the ingenuity of their claims to invest close to $2 billion in Nigerian companies from Japaul oil services to Resort Savings and loans.
Japaul seems to be regaining some grounds after sliding last week on the back of media reports questioning the ingenuity of the Milost deal.
Japaul’s share price rose 2.9 percent to 70 kobo on Tuesday, according to Bloomberg data, lifted by trading volumes of 80.28 million.
Meanwhile, Unity bank- reported to have been in talks with Milost over some $1bn potential financing- has refuted claims by the PE firm that it agreed to delist in Nigeria to have its stock traded in the U.S.
“No,” a unity bank source told BusinessDay when asked if the bank planned a delisting on the NSE. “They were putting pressure on us to sign the MESA but we resisted and never signed any agreement whatsoever,” the source said on condition of anonymity, unable to speak publicly.
“We are a regulated company and only had tentative discussions with Milost as we did with other investors amid a hunt for capital,” the source said.
Unity bank’s share price fell 4.44 percent to N1.29 on Tuesday, according to Bloomberg data.

IHEANYI NWACHUKWU & LOLADE AKINMURELE