Who is Milost?
Milost Global Inc is a US-based private equity with committed capital of over $25 billion and was founded by one Mandla J. Gwadiso, according to information on its website.
BusinessDay investigations show that the office address cited on Milost’s website as 48 Wall Street, 11th Floor New York, NY 10005 USA, is a virtual office or Business Centre owned by the Rockefeller Group.
According to information from the Rockefeller Group website, start-ups can “Enjoy the benefits of a prominent business address, without the expense of a physical office space. With locations in Midtown and Downtown Manhattan, you can get the best address at 48 Wall Street. Our Virtual Office Space options can include: a prestigious business address to meet with staff or clients, private telephone number with 212 area code, personalized telephone answering and call screening, access to conference and meeting rooms at discounted rates.”
Businesses that use virtual offices (which are usually shared with others) are usually small start-ups unable to meet the cost of a full-fledged office of their own.
They pay a monthly service fee to use the phone and mailing address for their own needs and meet with customers in the conference room to present a professional appearance.
Just when you are about to make sense of why Milost is using a virtual office, you remember this is a private equity firm that claims to have over $25 billion in committed capital.
Meanwhile, there is no information on Milost’s Limited Partners (LP) on their website and the company has never responded to calls and emails seeking clarity.
Our reporter at New York tried to book an appointment to visit Milost’s New York office, but the lady who received the call said she would connect him to the appropriate person to speak to but the call was disconnected and subsequent calls ignored.
This is hardly a surprise, given that the PE firm admitted in a recent statement on its website that “We do not entertain journalists.”
Our reporter then made enquiries about Milost from a source at a big private equity firm and a journalist, both based in New York but no one seems to know Milost which claims to have over $25 billion in committed capital.
Did Milost file a $500mn lawsuit against BusinessDay?
Milost threatened to file a $500 million (N180 billion) lawsuit against BusinessDay, and two of their journalists: Iheanyi Nwachukwu and Lolade Akinmurele, this week, for publishing what it described as false information.
Read the story here—>Milost sued in New York for fraud, violating US securities exchange law
Up until Tuesday, April 3, neither BusinessDay nor its journalists have received any letter for a lawsuit.
What BusinessDay published to warrant Milost lawsuit
Leading up to Milost’s threat to file a lawsuit against BusinessDay, the latter published two separate articles on the private equity firm and its planned investments in a number of Nigerian companies.
The first of these articles was published March 12 and titled
“The Math doesn’t add up with Milost”
The article picked holes in some of the announced investments by Milost in some Nigerian companies which include Japaul Oil and Maritime services, Resort Savings and loans- a mortgage bank, and Primewaterview holdings, a real estate company.
In a mix of debt and equity acquisition, Milost said it will invest $1.1 billion in Prime water view, $350 million in Japaul and $250 million in Resort Savings.
BusinessDay’s calculations showed that Milost was offering to buy the shares of publicly listed Japaul and Resort at a premium.
Resort Savings
Resort, with market capitalisation of N5.6 billion, said in a statement published on the NSE last week, that the Milost 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 implies paying six times more for each share (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, last December, had notified stakeholders that it was in talks with a local investor to attract investment worth N8 billion.
Japaul, a Nigerian oil-services company, 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.
Japaul Oil Plc is valued at N3.945billion on the stock exchange and has 6.262 billion shares outstanding.
Given that its share price was 35 kobo at the time of announcement, February 20, a $250 million (N90 billion) equity investment would imply paying N14 per share, a huge premium by any standard. And for what?
The unaudited management account of Japaul Oil and Maritime Services Plc for the third-quarter period ended September 30, 2017 shows a paltry turnover of N472.418 million, a 115 percent decline from N1.016 billion turnover in same period of 2016.
Japaul made a total comprehensive loss of N1.8 billion in the period, from N5.28 billion in the third quarter of 2016.
Japaul’s consolidated statement of profit or loss and other comprehensive income for the year ended December 31, 2016 shows the group loss nearly tripled to N22.010 billion from N8.036 billion in 2015.
There are four subsidiaries under the group – Japaul Shipping & Offshore Services Limited, Japaul Mines & Products Limited, Japaul Dredging Services Limited, and Japaul Gulf Electro Mechanical LLC Dubai UAE.
The group revenue in 2016 slumped by as much as 165 percent to N3.078 billion from N8.148billion in 2015, according to a financial statement filed at the NSE.
Japaul reported total assets of N27 billion, total liabilities of N51 billion and a net loss of N2billion in the 3rd quarter of 2017, further questioning Milost’s attraction to Japaul.
The firm went on a 177 percent share price rally after 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.
It all came crumbling down afterwards, as the shares collapsed to as low as 30 kobo, costing retail investors- who are the heavy hitters of penny stocks- millions of naira.
Classic pump and dump? Perhaps! In all of these, Resort and Japaul, as well as other companies linked to Milost, say the latter is a credible investor and is trying to stimulate the Nigerian economy.
What was most baffling was how the firms jumped to the defence of Milost and criticised BusinessDay for what most of them said was publishing a “misinformed article”.
Milost linked Nigerian firms speak
Resort: “It is sad to realise that a few grumbling, half educated individuals are against the recovery of the Nigerian economy through resuscitation of dying businesses,” the bank’s chairman, Sunday Fajinmi, said.
According to Fajinmi, Milost “has been verified to be a very credible investor in developing economies like Nigeria. Their track record which speaks for itself, attest only to their credibility. Their understanding of the peculiarity of developing economies in Private Equity financing is amazing when compared to others who are the paymasters of the journalist, the author of the fake news.”
Japaul: “We informed the Regulatory Authorities that we have signed Milost Equity Subscription Agreement (MESA 1) and Milost has not asked for any upfront fees from us until disbursement takes place, even the facilitation fees to Palewater who are advisers to the transaction is technically agreed to be paid when we start to drawdown on the facility despite agreement signed”, said Japaul Oil’s chairman, Jegede Paul.
According to Paul, “An escrow account agreement is being worked upon to trigger the drawdown on the facility. We don’t really know where the dailies got their variables that do not add up mathematically about Milost math. They should have watched and see what happens about the issue of performance.”
If these companies really did think Milost had a track record free of any blemish, then our second article probably triggered a change of heart.
BusinessDay’s second article titled “Milost sued in New York for fraud, violating US securities exchange law,” was published March 24. Milost has not denied the court case.
The article gave an account of a pending court case between Milost and one Alex MacGregor who sued the former in September 2017 for fraud.
Milost is facing six different charges, according to a document filed at the New York Southern District Court and obtained by BusinessDay.
In the Case No. 1:17-cv-06691 filed on September 1, 2017, MacGregor through his counsel {Law Offices of Nolan Klein} sued Milost for damages bothering on wire fraud, common law fraud, conversion, breach of contract and civil conspiracy.
The charges also include violation of the US securities exchange law by making material misstatements of fact related to a filing with the Securities and Exchange Commission.
MacGregor, the President and CEO of Canada-based KGIC Inc., (a publicly traded company on the Toronto Venture Exchange), seeks the refund of some $560,000 (N201 million) paid to Milost under the deceit of a financing deal worth $25 million.
The Plaintiff is also seeking punitive damages against Milost, and all reasonable attorney’s fees, litigation expenses, and costs.
Two phone calls to a number on Milost’s website and an email seeking comment went unreplied.
MacGregor’s company, KGIC, had been experiencing significant liquidity problems and needed to raise funds to recapitalize its operations.
After a plan to raise some USD$20.2 million from Canadian lenders in August 2016 failed, the company got commitment from Milost, which contacted MacGregor with a proposal to provide funding through a friendly take-over bid worth $25 million.
Milost proposed a buy-out using a U.S. OTC publicly traded company called PHI Global.
To execute the transaction, an agreement, called “Milost Equity and Subscription Agreement” (“MESA”) was entered into between both parties on October 30 2016.
After execution of the MESA, Milost requested that MacGregor form a special purpose private company to acquire the assets as well as to purchase an existing U.S. OTC shell Company identified by Milost as KMRB II Acquisition Corp, owned by one Florida-based Brian Kistler.
In this regard, Milost requested that MacGregor pay a retainer of $80,000 for its services in locating KMRB and facilitating the transactions.
MacGregor paid Milost the retainer of $80,000 and would go on to pay a total $250,000 in two separate payments for the acquisition of KMRB.
He also coughed up $70,000 as payment to complete the financial audit of the company (KMRB) as directed by Milost.
The total amount received by Milost from MacGregor, excluding any sums received pursuant to the earlier KGIC–Milost agreements, was $560,000, the court document showed.
MacGregor then got what appeared to be stock certificates issued by KMRB’s owner- Kistler- through an email sent by Milost, but they turned out to be fraudulent and were not reflected in any of the US Securities Exchange Commission (SEC)’s filings.
MacGregor has since requested a full refund of all monies paid to Milost, but is yet to receive any refund to date.
One Nigerian company confirmed to BusinessDay that Milost made a similar proposal as was made to MacGregor, as criteria to invest in his company. But luckily for him, his company balked at the option of signing to the MESA and ended up failing to sign any binding agreement.
Japaul is not as lucky, as chairman Jegede confirmed the company has signed the MESA document.
“MESA”
MESA is short for Milost Equity Subscription Agreement.
MESA came about when Milost responded to BusinessDay’s reports and clarified its investment strategy, as it tried to make a case for why they were purchasing the shares of companies at a premium.
The MESA instrument is aimed at funding “undervalued publicly quoted companies all around the world and is a hybrid of debt and equity,” according to Milost.
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 after 90 days, the latter is liable to pay the price difference to Milost in shares rather than cash.
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.
It is unclear what happens if the price rallies above the premium paid by Milost. Perhaps, Milost sells the shares acquired to book profit on the price rally.
How this is not a Pump and Dump scheme, as claimed by Milost, beats imagination.
“The ingenuity and financial engineering behind our Milost Equity Subscription Fund (MESA), as well as the Milost structure of engagement makes it easy for us to invest heavily in companies with high growth potential, whilst reducing our risk of investments through the checks and balances that are part and parcel of our framework of engagement”, Solly S. Asibey, Senior Partner & CIO of Milost, stated.
“Our aim is to make investments in companies that will have a high impact within the vertical industry in which they operate, thus increasing the potential for the companies to be counted amongst the best in their industries globally.
Our modus operandi has always been to invest in companies that will add value to the country and its citizens in terms of wealth and job creation, as well as the ability to contribute positively towards stepping up the economic transformation of the country.
Our success is intertwined with the success of our investee companies; and from a corporate governance perspective, we subscribe to the rules and regulations of the Stock Exchange, Federal Reserve Bank, and the SEC in terms of all our engagements,” Asibey said.
Asibey was hired as Chief Investment Officer on February 1, 2018, following the retirement of James S. Kuo last year. This may not be unlinked with the suit against Kuo and his Milost partners.
“Kuo participated in numerous conversations with MacGregor wherein he and/or the other individual Defendants demanded money on behalf of Milost Acquisition Corporation”, the court document in the fraud case against Milost shows.
Other individual defendants in the suit against Milost are Mandla Gwadiso, Jerry Choate, Egerton Forster, Brian K. Kistler, and Harold Martin.
Latest on Milost/Unity bank
In a statement filed with the Nigerian Stock Exchange on Thursday March 29, Unity bank remained unbending on its earlier position that no investment of $1 billion from Milost Global was made in Unity Bank Plc.
“The “Term Sheet” dated September 4, 2017 said to have been executed was a “proposal” submitted by Milost Global Inc. “for discussion purposes only and NOT a commitment” by the parties. No definitive documentation governing the proposed financing was executed,” the statement read.
The bank’s share price fell 0.8 percent on Thursday, according to Bloomberg data.
Unity’s denial comes on the heels of recent claims made by Milost that the former signed a binding commitment agreement for a purpoted $1 billion financing deal.
The bank confirmed that Oluwatomi Somefun, the bank’s CEO visited Milost’s New York office to discuss the deal.
Somefun “was in New York in October 2017 for other engagements and decided to visit Milost and verify the firm’s address as well as put a face to the officers of Milost that have been engaging the Bank via telephone and emails,” the statement read.
“A brief meeting” was held and discussions were around the dynamics of Milost proposal to Unity Bank Plc, and socialization of the policies and regulations around equity investment in Nigeria, the bank said.
The Bank had in a previous statement informed that although it has been involved in series of engagements with several prospective investors including Milost but no conclusive deal had been struck.
Bloomberg, on March 19, 2018, reported that Milost was looking to inject as much as $1 billion (about N360billion) to recapitalise Unity Bank Plc.
Milost said the Bloomberg article was “very factual except that Milost was to acquire 30 percent of the bank, whereas in reality Milost was to take a controlling 60percent of the bank at closing, in a transaction that would retain the same board members and the same management for continuity of operations.”
However, on March 21, Unity Bank Plc in a letter to the Nigerian Stock Exchange (NSE) notified shareholders and other stakeholders of the bank that it has not reached any agreement with Milost to warrant the Bloomberg report.
The bank admitted to holding talks with a number of investors, including Milost, to raise capital but had not executed any binding offer with Milost.
Milost responded to Unity’s statement by terminating the deal and accused the tier two lender of lying to regulators, the Nigerian Stock Exchange (NSE).
“Last week, Unity Bank issued a false statement which denied signing a binding commitment agreement, disputing a factual and founded Bloomberg article that initially reported on the transaction”, Milost said March 22.
“Milost issued a binding commitment agreement to Unity Bank which was approved by the board of Unity Bank and executed by both parties on November 14, 2017,” Milost said on its website.
Milost said when it noticed that Unity bank didn’t notify local regulators, the NSE, of the signed agreement; it “assumed it was because Unity had agreed to move its listing to the USA.”
“That is bizarre and unrealistic,” two persons familiar with the matter said of the chances that Unity bank could delist its shares on the NSE in favour of a move to the US.
The Bank is said to have been focusing on its recapitalization drive and had pledged to continue to engage stakeholders on subsequent developments and achievements in this regard, according to the people who did not want to be named, due to the sensitivity of the matter.
The bank admitted that its on-going recapitalization programme meant they were talking to a number of investors, including Milost, to raise money but had not received any commitment for investment of $1billion from Milost.
“Milost Global Inc. is one of the prospective investors introduced to the Bank by a local entity called Mayo BV,” the bank said.
In April 2017, Unity, which was formed out of the merger of nine banks between December 2005 and March 2006, said it was in talks to sell its non-performing loans to avoid penalties after missing a regulatory deadline to file its recapitalization plans.
A slump in global oil prices that contributed to Nigeria’s first recession in 25 years in 2016, hammered some small- and mid-sized lenders as they were faced with deteriorating loan books and weak asset quality on the back of loan defaults by businesses acute dollar shortages.
Meanwhile, another company- Aso Savings and Loans Plc- linked by media reports over a financing deal purportedly worth $250 million with Milost, has also debunked such claims.
“We dismiss this claim and wish to state that ASO had at no time issued any notice to Nigerian Stock Exchange (NSE) as purported in the media. ASO Savings & Loans Plc has not entered into any agreement with Milost Global Inc. Members of the public are implored to disregard the false news that has pervaded the media,” the bank said in a filing at the stock exchange.
“Any change to ASO’s business structure or operations will be duly communicated by the Bank through the appropriate channels,” the bank said.
Threats to shut Milost out of Nigeria
Milost claimed in the statement that soon after the Bloomberg story on the Unity bank deal broke, it “started receiving threatening emails from a gentleman who says he is politically connected to the powers that could shut Milost out of Nigeria if Milost didn’t terminate the Unity Bank transaction.”
“The said individual was very well informed about our dealings with Unity Bank such that he knew the audit group Milost had hired to carry out the final due diligence,” Milost said.
“He told Milost to tell the board of Unity Bank that the audit firm had instructed Milost that Unity Bank was a bad investment, failing which he would unleash the media on Milost using among other things accusations that would cause the government to send Milost packing. These threatening emails were shared with the CEO of Unity Bank and the then CFO Ebenezer Kawole,” Milost said.
Unity Bank said the threat did not emanate from it.
