macroafricaintel | Lessons from Milost’s experience in Nigeria

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Milost Global, an “American private equity firm” is a subject of controversy in Nigeria. Its botched $1 billion Unity Bank acquisition deal is a subject of investigation by Nigeria’s Securities and Exchange Commission (SEC). After negative media reports about the deal and a disavowal by the management of Unity Bank about any firm commitment to proceed on the transaction, Milost chief executive Kim Freeman released an elaborate timeline of his firm’s interactions with the bank. According to Mr Freeman, the request for a possible deal came from Unity Bank’s chief executive Oluwatomi Somefun in early August 2017 and a term sheet for a $1 billion mix of debt and equity capital investment was agreed, signed and approved by the board of Unity Bank a month after in early September 2017. In mid-November 2017, a binding commitment was also finalised, according to Milost. In response, Unity Bank denied there was any plan to take capital from Milost talk less delist from the Nigerian Stock Exchange (NSE). However, it acknowledged there were engagements between them but insists these were “preliminary discussions, which must necessarily be subjected to relevant regulatory, statutory and corporate governance compliance parameters before such discussions could become elevated to the level of a “binding commitment agreement.” A source at Nigeria’s Securities and Exchange Commission (SEC) said via a phone conversation in late August that SEC enquired about the botched or purported Unity Bank transaction by Milost at the Nigerian Stock Exchange and found none of Unity Bank shares were bought or exchanged between Milost and any other party. In other words, the transaction did not take place. Of course, that is generally in line with was revealed by both Milost and Unity Bank. And in the absence of an actual transaction, there is not much SEC can do about it. When asked if SEC was still investigating the matter, the source said it was likely the case but he could not say so definitively.

Too good to be true?
Undeterred, Milost went ahead with negotiations with other Nigerian listed firms. In February 2018, Japaul Oil & Maritime Services Plc revealed it had signed a $350 million financing deal with Milost; $250 million in equity and $100 million in convertible loans. Months later, Japaul “resolved that in view of the numerous red flags associated with the proposed equity injection that management should in consultation with the Company’s retained counsel take prompt steps to pull out of the transaction in a non-prejudicial manner.” There was also news in late March 2018 that Aso Savings & Loans Plc had entered into a $250 million equity financing deal with Milost; news Aso Savings asserted was “false”. There was not similar controversy with the relationship between Resort Savings and Loans Plc and Milost, however. In March, Resort notified the Nigerian Stock Exchange (NSE) that it had signed a commitment letter with Milost for a $250 million financing deal; $100 million in equity and $150 million in debt. All these firms have one distinct characteristic: they are NSE-listed firms. Milost changed tact later, it seems. Hitherto, it sought private firms for investment. In December 2017, Femab Properties Limited received an initial drawdown of $10 million from an agreed $500 million financing deal with Milost. About a month later, in January 2018, Primewaterview Holdings Nigeria Limited, another real estate firm, closed a $1.1 billion deal with Milost for a 100 percent interest in the company. It was Milost’s intention to follow these with acquisitions of “a large Nigerian bank and an insurance company…before the end of March 2018.” If successful, this would have been a step-up for Milost; as banks and insurance firms that would necessarily be of interest would be listed on the NSE. In light of the events that ensued, the botched Unity Bank deal for instance, this would not be the case.

What is certainly clear is that the Nigerian firms that did business with Milost, that is, Unity Bank and the others, did so informedly but cautiously. With the negative publicity the activities of Milost have generated, however, there are likely not so many Nigerian firms, listed ones at least, that would be willing to engage with it at this time. Perhaps then, Milost should have simply stuck to its strategy of seeking private firms in need of capital without the attendant publicity. This tends to be the modus operandi of PE or investment firms which have capital from individuals and/or businesses who perhaps prefer to be anonymous. Since the principals and managers of Milost are certainly aware of the risks of being so “open” and yet effectively “closed”, what can be inferred is that there is a desire by Milost to be a respectable investment firm. But could it hope to do so without being as transparent as necessarily possible? Its experience in Nigeria thus far is certainly a lesson for investment firms looking to make inroads into African or frontier or emerging markets on how not to proceed.

But what is the truth? Is it possible Milost would court such publicity if it had a great deal to hide? Would it threaten legal action to clear its name in Nigeria while mindful of the intrusive procedure that would entail? In any case, what do seasoned professionals in the Nigerian investment industry think of Milost? Quite frankly, some think Milost is too good to be true. A highly respected investment luminary, who in light of the sensitivity of the matter prefers anonymity, provides an assessment as follows: “I don’t know anything about them for a fact. I’ve never interacted with them. But from what I read and how they conduct themselves there is something not right about them. They simply don’t behave like a fund manager that has billions to invest. It is hard for me to articulate but it’s something that most real finance professionals will also say (based on discussions with some). They are either a scam, are investing ill-gotten money (whose owners don’t want, need or haven’t been accepted by professional managers), or have way way less money than they claim.” The respondent is as fair-minded and objective as they come. To ensure fairness, I presented the respondent’s views via an email to Milost CEO Kim Freeman. Mr Freeman sent a reply on 20 August 2018 as follows: “Thanks for your emails asking questions about Milost Global for an upcoming article in one of your publications. Unfortunately, due to pending litigation against a Nigerian newspaper, I will not be able to answer your queries.”

Better suited for private investments
I also sent questions about Milost’s seeming change in strategy to seeking investments in publicly-listed entities instead of private ones hitherto to Mr Freeman. These went unanswered, however. The litigation against a Nigerian newpaper that Mr Freeman refers to relates to a series of articles by BusinessDay, a Nigerian business daily. (Disclosure: The author of this article is a columnist for BusinessDay.) In its article of 28 March 2018, BusinessDay asserts various analysts believed Milost was engaged in a “classic pump and dump strategy…in the stock market”. In that article, BusinessDay quotes a source at Unity Bank that Milost put pressure on them to sign an equity subscription agreement but that the bank “resisted and never signed any agreement whatsoever”. I asked Frank Aigbogun, publisher & chief executive of BusinessDay in Nigeria about any litigation against the newspaper or any of its journalists by Milost. In response in late August, Mr Aigbogun said “I am aware their lawyer wrote to BusinessDay threatening a lawsuit but cannot recall we got any court papers in this regard. I will check.”

Similar controversy trails Milost in South Africa. In July 2018, the Johannesburg Stock Exchange (JSE) suspended trading in the shares of WG Wearne, a building materials supplier, and Visual International Holdings, a real estate company. The move followed the failure of the companies to file their provisional financial statements within the stipulated period. According to Business Report, a South African online publication, both companies “entered into debt-funding agreements with…Milost Global which they claimed were not fulfilled.” For WG Wearne, Milost “committed to invest up to R300 million” via an equity subscription agreement entered into in October 2017 but terminated in May 2018 by WG Wearne, according to Business Report. Had the financing arrangement gone ahead, there would not have been a need for WG Wearne to recapitalise and hence be late to submit its financial statements to the JSE. For Visual International, the company revealed in June 2018 that Milost Global failed “to pay the claw-back subscriptions of R10.23m in line with the new terms of a debt-financing agreement published in May to recapitalise the company”, according to Business Report. Has Milost had any successes then? Milost Global Inc and Isilo Capital Partners (launched by Milost in November 2017 to raise $5 billion for African transactions) took over Primewaterview Holdings Nigeria Limited and appointed Isilo Capital chief executive Tiny Diswai as chairman in January 2018. In response to questions about the current status of the Primewaterview acquisition, Mr Freeman replied thus on 29 August 2018: “No comments on Primewaterview can be made for the same reason I mentioned in my email on 20th August.” The Primewaterview transaction happened under a different chief executive then at Milost called Mandla Gwadiso. Kim Freeman took over as CEO in February 2018.

Mining origins?
An analysis of the curriculum vitae of Mr Freeman suggests Milost is probably funded from proceeds of mining. Considering how opaque the mining industry can sometimes be, with a lot of transactions under the shroud of secrecy, it is likely that Milost is an investment vehicle for the preservation and growth of capital from the firm’s mining activities or those of its capital providers. Although the firm’s website does not reveal much, an examination of Mr Freeman’s CV on LinkedIn suggests Milost probably started out as a mining investment firm or at least maintains mining interests. Mr Freeman replied to my email for confirmation of this supposition on 29 August 2018 as follows: “Despite my mining background, Milost Global’s origins were not in mining but covered all sectors.” Still, before becoming CEO of Milost Global Inc, Mr Freeman was managing director for mining at the firm from August 2017 to February 2018, after which he became CEO. His CV on LinkedIn also shows stints at RioZim in Zimbabwe as chief operating officer between April 2014 and August 2015. Mr Freeman also worked at Platinum Australia Limited between January 2010 and June 2011. Thereafter, he had a 4-month stint (February 2012-May 2012) with Mintails SA (Pty) Ltd in South Africa. According to the CV, Mr Freeman started his mining career as a graduate mining engineer at Roan Consolidated Mines in Mufulira, Zambia in October 1974. After two years there, he went on to become an inspector of explosives at the Department of Energy, Mines and Resources of Canada between September 1977 and July 1980. Thereafter, Mr Freeman became a mine manager at O’okiep Copper Company in Namaqualand, South Africa between September 1980 and January 1986. From there, he proceeded to De Beers Consolidated Mines Limited as mine superintendent between May 1987 and October 1990. Subsequently, Mr Freeman had a stint with Debswana Diamond Company as Assistant General Manager at its Jwaneg mine between October 1990 and January 1996. Other stints were as vice president (operations) at SouthernEra Resources Limited in Canada and South Africa and chief operating officer with Hindalco Industries Limited between April 2005 and July 2006, responsible for the firm’s copper mining operations in Australia and that for bauxite in India. Judging from his antecedents therefore, Mr Freeman is well known in mining circles. And this is also likely the case for Milost.

Show your hands
What can be discerned for certain is that Milost has some capital that it wants to invest. How much capital it has cannot be verified, however. And a desire for US listing for its investee companies is likely to ensure that it is able to exit its investments with ease. Accusations that it might not really be interested in adding value to its investee companies but to strip them for profit may have some basis. But that is not a crime. After all, private equity firms are primarily interested in getting return on their capital. It certainly would help if Milost were to present a more transparent profile. If it indeed entered into a binding commitment with Unity Bank, for instance, it could make them public. It could also sue Unity Bank for breaches if indeed that were the case. By not doing so thus far, to my knowledge at least, suggests Unity Bank may indeed not have entered into anything binding with Milost. But these suppositions would be needless if Milost were more transparent. For it certainly cannot want to invest in high profile companies and perhaps move their listings outside of their local jurisdictions without expecting some level of scrutiny. Besides, did Milost register with Nigeria’s SEC and other relevant regulatory agencies like other foreign investment and private equity firms operating or investing in Nigeria do? If as Milost says, it plans to continue seeking investment opportunities in Nigeria and elsewhere in the West African region, it behoves it to come clean about its source of capital, its motivations and activities.

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