SEC Allotment of 2008 Starcomms Offer and Return of Monies

SEC Allotment of 2008 Starcomms Offer and Return of Monies

The word Allotment derives from the French term allotement. According to www.encyclo.co.uk, an allotment is, the number of shares received on application for a new issue or privatisation. This may be less than the number applied for, but will never be more. In the context given by www.moneyterms.co.uk, an allotment is, ...The allotment process is trivially simple if an issue is not oversubscribed: each applicant gets whatever they applied for. If an issue is oversubscribed (as happens with popular IPOs) then some mechanism has to be used to decide how many shares each applicant gets. Relating specifically to the capital markets, the Securities and Exchange Commission (SEC) grants allotment to shareholders under the guidelines for a Private Placement and Initial Public Offers (IPOs). Nigerias SEC recognises that it is no exception to this custom. By the rules and regulations of the commission; Rule 68 (1) and (2) to be precise, which states how an allotment is statutorily instituted and should be carried out upon submission of allotment proposal by the issuing house it reveals the process for arriving at the selected allottees names. In the case of a private placement, where not more than fifty (50) pre-identifiedwould-be-investors agree to invest in a company, allotment is expected to be given to fifty (50) individuals or less, by the SEC. While in an IPO, which gives room for more than fifty (50) investors, allotment may only be modified following an over-subscription. In this light, we reviewed the purported Private Placement of Starcomms Plc dated May 3, 2008, where the issuers/issuing houses, Chapel Hill Advisory Partners and Stanbic IBTC Bank Plc (which equally but curiously acted as a receiving bank) were reported to have announced both PP offers and IPO offer intermittently at the staged Investors fora and in national dallies; yet requested for and were granted approval for a Private Placement by Nigerias SEC. The offer generated huge interest from the public based on the involvement of the SEC, the names and pedigree of financial advisors involved and the open support/promotion of the offer by several approved and licensed stockbroking firms who directly and indirectly created special purpose vehicles for the sole purpose of investment in a private placement. The irony here is that this was a market-wide engagement that underlies the excesses in the market at this time and the regulatory inertia that had beset the Securities & Exchange Commission/NSE. Several investors got involved based on different representations made by the financial advisers some went in with the understanding that they were putting their funds in a PP arrangement, others perhaps thought, in an IPO arrangement. In one of the receiving banks for example, First City Monument Bank (FCMB) Plc realised deposits from 350 investors in the Offer Proceeds Accounts (Trust Account) (See Appendix A for details on list) At the allotment stage, the request for the Proposal on allotment and other necessary documents by SEC was delivered by Chapel Hill. The proposal describes the documents attached but notably contained a summary of all applications received and a list of only 43 applicants who were allotted 50,000 shares and above. A number of unsuspecting investors were left out as evident in the nonissuance of direct allotment to them as would be expected in a PP scheme. www.proshareng.com 1

SEC Allotment of 2008 Starcomms Offer and Return of Monies

Most of these investors were not aware of the final list as it was not published but were issued shares certificates by First Registrars suggesting that all had transpired as would be expected. Yet, these shares were issued through Chapel Hill in the first instances and through/for and in the interest of the numerous investment vehicles created for this purpose without regard to the known rules and procedures for share transfers. In essence, the un-allotted were credited with shares into their respective Central Securities Clearing Systems (CSCS) accounts. We do not know how the shares allotted to these investment vehicles were dematerialised. See breakdown of allotments (with regards to deposits records from FCMB) Greater than or equal to 1 billion Greater than or equal to 500m but less than 1 billion Greater than or equal to 100m but less than 500m Greater than or equal to 50m but less than 100m Less than 50m 2 6 37 31 264

Of the 3 receiving banks (FCMB, Stanbic IBTC and Fidelity Bank) involved in the Starcomms Offer of May 2008, only the deposits details of FCMB is analysed for this commentary. The deposit returns of other banks, which the SEC was expected to demand for and review will be made public to indicate how these issue was managed. This may or may not include payments made to special purpose vehicles and funds used to obtain funds from the public. From the records available to our investigative team, Afrinvest West Africa - who put together a fund (not ascertained to have been approved by the SEC as required under its rules and the ISA 2007 - Afrinvest - Tele Fund Starcomms PPM [2]) initiated an investment vehicle under the nomenclature Afrinvest Starcomms Teleops Fund, for the sole purpose of this Private Placement arrangement. The firm advised that the Fund was designed for investors who seek capital growth through targeted exposure to privately placed equity securities of Starcomms Plc and were allotted shares by the SEC in its final list of 43 firms. Curiously, most of the clauses detailed in the document conferred on the offer the characteristics of and IPO and not a private placement. With terms such as minimum initial subscription to the fund being N150,000 (10 units); Fund will be dissolved once the shares of Starcomms are listed on the Nigerian Stock Exchange and the underlying shares held by the Fund will be distributed to investors

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SEC Allotment of 2008 Starcomms Offer and Return of Monies

pro-rata, it was more that apparent/obvious that the consortium of the companies involved in the Offer of Starcomms Plc combined the characteristics of both private placement (PP) and Initial Public Offer (IPO) in raising money from the Nigerian investors with scant regard for the rules and regulations for conducting such. Aggrieved investors who have formally written to us revealed that letters and forms for this offer were received via email, in blind copies and they relying on the regulators approval and numerous public pronouncements believed they were engaged in a public offer. Liability Technically, the greater liability of the investors losses is placed on the issuing houses who by the ISA section 41 (1), (2), (3), (4) and (5) is to be compelled by the SEC to refund the prospective shareholders with interests and commercials rates on their monies since they were not cleared for allotments by the Regulator. These firms Stanbic IBTC Plc and Chapel Hill Denham should refund the monies sourced from these four year investment to subscribers with interest. From preliminary calculations, it is apparent that these firms are liable to funds in excess of N200 billion which places them in a going concern situation, hence and perhaps the reluctance of the Securities & Exchange Commission to act in accordance to its own rules. The non-action is equally costly for the market/bourse as it remains a limiting factor in restoring back market confidence. Related News/References: 1. The STARCOMMS PLC Private Placement Exposed - The Petition 2. Starcomms Plc: The SEC Approved list of 43 Allottees 3. Starcomms: What happened to Circle TEL for which the NCC gave the PP approval? 4. Public Offer Vs Private Placement - The Starcomms Offer Reviewed 5. SEC Approvals in respect of Starcomms 2008 Offer 6. Starcomms Confirms role of ACTIS, ECP and Chapel Hill Denham 7. Chapel Hills 2009 Response to Initial Allegations on Starcomms Offer 8. Starcomms Pilot Fishing Presentation March 08 9. Starcomms PPM [1] 10.Investor Presentation 2008 - Starcomms Plc 11.Starcomms Investor Letter 12.BusinessDay of 29th April 2008 13.Afrinvest - Tele Fund Starcomms PPM [2] 14.Private Placements in Nigeria - An analytical Framework. 15.Shares: Private Placements as Public Offers - Legality DISCLAIMER/ADVICE TO READERS:
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