sec allotment of 2008 stracomms offer and return of monies

7/31/2019 SEC Allotment of 2008 Stracomms Offer and Return of Monies

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SEC Allotment of 2008 Starcomms Offer and Return of Monies

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SEC Allotment of 2008 Starcomms Offer and Return of MoniesMay 16, 2012 / Research

The word Allotment derives from the French term allotement. According towww.encyclo.co.uk , an allotment is, the number of shares received on applicationfor 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 , anallotment 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 happenswith popular IPOs) then some mechanism has to be used to decide how many shareseach 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 andInitial Public Offers (IPOs).

Nigerias SEC recognises that it is no exception to this custom. By the rules andregulations 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 allotmentproposal by the issuing house it reveals the process for arriving at the selectedallottees names.

In the case of a private placement , where not more than fifty (50) pre-identified-would-be-investors agree to invest in a company, allotment is expected to be given tofifty (50) individuals or less, by the SEC. While in an IPO, which gives room for morethan 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 May3, 2008, where the issuers/issuing houses, Chapel Hill Advisory Partners and StanbicIBTC 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 stagedInvestors fora and in national dallies; yet requested for and were granted approval for aPrivate Placement by Nigerias SEC.

The offer generated huge interest from the public based on the involvement of theSEC, the names and pedigree of financial advisors involved and the opensupport/promotion of the offer by several approved and licensed stockbroking firms whodirectly 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 inthe 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 financialadvisers some went in with the understanding that they were putting their funds in aPP arrangement, others perhaps thought, in an IPO arrangement. In one of the receivingbanks for example, First City Monument Bank (FCMB) Plc realised deposits from 350investors in the Offer Proceeds Accounts (Trust Account) ( See Appendix A for details onlist )

At the allotment stage, the request for the Proposal on allotment and other necessarydocuments by SEC was delivered by Chapel Hill.

The proposal describes the documents attached but notably contained a summary of allapplications received and a list of only 43 applicants who were allotted 50,000 sharesand above. A number of unsuspecting investors were left out as evident in the non-issuance of direct allotment to them as would be expected in a PP scheme.


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Most of these investors were not aware of the final list as it was not published but wereissued shares certificates by First Registrars suggesting that all had transpired aswould be expected. Yet, these shares were issued through Chapel Hill in the firstinstances and through/for and in the interest of the numerous investment vehiclescreated for this purpose without regard to the known rules and procedures for sharetransfers.

In essence, the un-allotted were credited with shares into their respective CentralSecurities Clearing Systems (CSCS) accounts. We do not know how the shares allottedto these investment vehicles were dematerialised.

See breakdown of allotments (with regards to deposits records from FCMB)

Greater than or equal to 1 billion 2

Greater than or equal to 500m but less than 1 billion 6

Greater than or equal to 100m but less than 500m 37

Greater than or equal to 50m but less than 100m 31Less than 50m 264

Of the 3 receiving banks ( FCMB , Stanbic IBTC and Fidelity Bank ) involved in theStarcomms Offer of May 2008, only the deposits details of FCMB is analysed for thiscommentary. The deposit returns of other banks, which the SEC was expected todemand 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 usedto obtain funds from the public.

From the records available to our investigative team, Afrinvest West Africa - who puttogether a fund (not ascertained to have been approved by the SEC as required under itsrules and the ISA 2007 - Afrinvest - Tele Fund Starcomms PPM [2] ) initiated aninvestment vehicle under the nomenclature Afrinvest Starcomms Teleops Fund, forthe sole purpose of this Private Placement arrangement. The firm advised that the Fundwas designed for investors who seek capital growth through targeted exposure toprivately placed equity securities of Starcomms Plc and were allotted shares by the SECin its final list of 43 firms.

Curiously, most of the clauses detailed in the document conferred on the offer thecharacteristics 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 StockExchange and the underlying shares held by the Fund will be distributed to investors


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pro-rata, it was more that apparent/obvious that the consortium of the companiesinvolved in the Offer of Starcomms Plc combined the characteristics of both privateplacement (PP) and Initial Public Offer (IPO) in raising money from the Nigerianinvestors with scant regard for the rules and regulations for conducting such.

Aggrieved investors who have formally written to us revealed that letters and forms forthis offer were received via email, in blind copies and they relying on the regulatorsapproval and numerous public pronouncements believed they were engaged in a publicoffer.

LiabilityTechnically, the greater liability of the investors losses is placed on the issuing houseswho by the ISA section 41 (1), (2), (3), (4) and (5) is to be compelled by the SEC torefund the prospective shareholders with interests and commercials rates on theirmonies since they were not cleared for allotments by the Regulator.

These firms Stanbic IBTC Plc and Chapel Hill Denham should refund the moniessourced from these four year investment to subscribers with interest.

From preliminary calculations, it is apparent that these firms are liable to funds in excessof N200 billion which places them in a going concern situation, hence and perhapsthe reluctance of the Securities & Exchange Commission to act in accordance to its ownrules.

The non-action is equally costly for the market/bourse as it remains a limiting factor inrestoring 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 PPapproval?

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 Denham7. 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 Plc11. 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 -

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sec allotment of 2008 stracomms offer and return of monies

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