Will Ibeto pull the plug on its $850mn Milost deal?

Ibeto Cement Limited, a Nigerian maker of the building material, shrugged off warning signs from Japaul and Unity bank, to ink a $850 million deal with Milost last week.

Milost will provide $500 million in equity and $350 million as debt to Enugu-based Ibeto cement, Milost said in a statement on its website, alluding to a “binding” agreement between both parties.

The deal comes three weeks after Japaul Oil and Maritime services backed out of a planned $350 million (N126 billion) deal with Milost, citing “numerous red flags associated with the proposed equity injection.”

Unity bank also backtracked on a $1 billion deal with Milost in March, with the tier-two lender denying entering a binding agreement with the private equity firm, even as the latter claimed it received threat mails to back out of the deal.

Unity and Japaul were reportedly coerced by regulators- the Securities Exchange Commission (SEC) and Nigerian Stock Exchange (NSE) to pull the plug on the Milost deals.

In the case of Ibeto Cement, a privately-owned company which is not listed on the NSE, it may not be that straight forward.

The pattern in the break up between Milost and affected Nigerian partners suggests that only the firms under the regulatory watch of the SEC and NSE have denounced their deals.

The unlisted and less regulated Nigerian firms like Primewaterview holdings and Femab properties haven’t moved a muscle yet and appear to be following through with their “binding agreement” with Milost.

In the end, time will tell if the cement maker pulls the plug on this deal.

Ibeto is said to have executed a binding MESA (Milost Equity Subscription Agreement) with Milost Global Inc., for a $850 million financing, of which $500 million is in equity and $350 million debt.
As part of the deal, Ibeto will start the process of going public in a reverse merger in the United States in efforts to become a publicly traded company.
“On Friday May, 25 the Nigerian Dollar Billionaire Chief Cletus Ibeto (Owner of Ibeto Cement) will personally consummate the acquisition of a publicly traded Company that he will use to reverse the assets of his cement business in America, the final acquisition and definitive agreements have already been executed,” the statement read.
As Ibeto carries on with its newly sealed Milost deal, Japaul has continued to lick its wounds, as the free fall in its share price has worsened since announcement it was axing its deal with Milost on May 9.
Japaul’s share price plunged a further 8.3 percent Tuesday, May 29, to afresh low of 22 kobo, according to Bloomberg data, putting it in worse position than the 33 kobo it traded at before it was enveloped by the Milost controversy.
Unity Bank and Aso Savings and Loans- have since distanced themselves from deals with Milost, with the former pulling the plug on a $1 billion financing agreement, while the latter (Aso Savings) insists a deal was never in place.
All eyes have now turned to the companies that are following through on their deals with Milost.
According to the public announcements that were made by Milost and the affected companies at the time an agreement was reached, real estate firms- Femab properties and Prime Waterview holdings- are the only two companies that remain on course with their dealings with Milost.
Although it was reported April 10 on Milost’s website that one Williamsville Sears Management Inc. signed a Letter of Intent for the acquisition of PrimewaterView from Milost in an all-stock transaction subject to the approval by both companies.
“The board of the company, at its meeting held on Thursday, March 29, 2018, deliberated on the proposed equity injection by Milost… and management resolved that it should in consultation with the company’s retained counsel, take prompt steps to pull out of the transaction in a non-prejudicial manner,” the May 9 statement signed by Akin Oladapo, Japaul’s acting managing director read.
Termination costs are typically associated with financing deals that go burst last minute. They serve as compensation fees.
Palewater Advisory Group Inc in New York and Banklink Africa Limited in Nigeria were reported to have arranged and negotiated both the Japaul deal, but two phone calls to a number found on their website was not answered.
A private equity lawyer with peripheral knowledge of the transaction said the settlement fees could be as high as N10 billion.
That works out to 7.9 percent of the total deal reportedly worth N126 billion.
Several phone calls to a New-York number on Milost’s website, to confirm if it will press for break-up fees from Japaul, went unanswered.
Four companies, who did not want their name in print, also claimed to have pulled the plug on informal talks with Milost for a mix of debt and equity financing, after reading the BusinessDay report published March 12, 2018.
The article titled “The Math doesn’t add up with Milost” picked holes in Milost’s announced $1.1 billion in real estate firm- Prime waterview, $350 million in oil and maritime services firm, Japaul and $250 million in mortgage bank, Resort Savings and Loans.
Our calculations showed that Milost was offering to buy the shares of publicly listed Japaul and Resort at a premium and questioned the rationale behind a premium investment in a technically insolvent Japaul and a Resort Savings yet to release a financial statement since 2015.
Japaul announced in February that Milost will invest $250 million in equity and add another $100 million in convertible loans, causing its share price to rally to multi-year highs.
Given that its share price was 35 kobo and it had 6.2 billion outstanding shares, at the time of announcement, February 20, a $250 million (N90 billion) equity investment would imply paying N14 per share, a huge premium by Private Equity standards.
The firm went on a 177 percent share price rally after the deal was announced, trading at N0.97 on Friday March 09, according to Bloomberg data.
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- over N3 billion.
In its 2017 full year report, the auditors of the company questioned the going concern status of Japaul reporting that “a matter of uncertainty exist which may cast significant doubt on the Group’s ability to continue as a going concern.”
Japaul reported losses worth N13.08 billion for the full year 2017 period.
Revenues declined 38 percent to N1.9 billion in 2017 from N3.07 billion in 2016.
For Resort savings and Loans, which also announced a planned investment to the tune of N90 billion ($250 million) by Milost, the numbers also came short.
The mortgage provider, which has a market capitalisation of N5.6 billion, said 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 (having been suspended since 2015) and it has 11 billion outstanding shares, Milost’s N36 billion equity injection implies paying six times more for each share (N3 per share).
Total assets for the mortgage provider for the period came in at N10.1 billion.
Milost’s injection and subsequent public listing in the US will allow Ibeto Cement to raise enough capital and put the company in the forefront of the cement industry in Africa, according to chairman, Cletus Ibeto.
Ibeto plans to grow the company beyond west Africa through the acquisition of other profitable cement businesses outside Nigeria within the next 12 months, this will be done at the back for the development of the two new plants.
“Our key strategic objective in the vast and extensive development of the cement business in Nigeria and the West African sub-region is to make cement affordable to all Nigerians and tiers of government in such a way that they should be able to develop modest homes for themselves and their families inclusive of road infrastructure,” Cletus said.
Kim Freeman, Managing Partner & CEO of Milost Global Inc., also stated, “We expect this transaction to provide a template for our other investments in Africa which will continue to enhance the value of the companies we invest in as well as value for our investors.”
Cletus Ibeto is an industrialist who was reputed for manufacturing brake pads. His brake pads company was later sold to Star Auto Industries Limited’s Chidi Ukachukwu. The company, however, shut down in 2004 owing to inability to repay its loans and compete with cheap Chinese products.
Ibeto acquired the Eastern Bulkcem, a cement company, in Nkalagu, Ebonyi State in 2016. The firm was mired in legal disputes since 2012, but there was respite in mid-2016 when the Ebonyi State government resolved the crisis.
In June 2016, a deed of understanding was signed between NigerCem and representatives of Nkalagu, Nkalaha, Umuhuali and Amaezu, which are the four host communities where the cement company is sited.
Ebonyi State owns 10 percent equity in NigerCem in the new arrangement.