On Tuesday 16, Nigeria’s National Council on Privatization announced that a Consortium known as New Generations Telecommunications had bid $2.5bn for a 75% stake in Nigeria’s state owned carrier NITEL. The winning consortium reportedly includes Minerva Group of Dubai, Nigeria’s Gicell (a small local wireless operator) and China Unicom (Hong-Kong). With all the due caveats for the finer details of the proposed transaction, the purported bid is puzzling and outlandish enough to strain credulity for an operation we had described as a “ghost ship”.  (Please click title to read full posting).

We make a number of points:

- The bid is $1.5bn higher than was offer by the next highest bidder (UK consortium Omen International), a rather unprecedented gap in absolute terms.

- The bid is $2bn higher than it was only three years ago (though for a higher stake), when Nigerian group Transcorp agreed to pay $500m for NITEL. Since that ill-fated bid, the company’s financial and strategic position has deteriorated, an evolution at odds with the valuation suggested by the winning bid.

- It is tough to identify the cash flows to would justify the bid. Under the most favorable of projections, NITEL’s mobile unit would be hard-pressed to generate such free cash flows.  Other segments have some upside, but are similarly a long shot to generate the underlying free cash flows that would be required to meet the valuation.

- No NITEL privatization is quite without controversy; two days after the initial announcement, a China Unicom spokesperson said the company was not involved in the bidding. A cascade of purported bidders has since denied they were involved.  

- The first test of bid credibility will come 10 days after it is officially accepted: the consortium will have to put up 30% of its bid, a substantial $750m.