A White Paper On Transcorp - Analyst's Report
Draw Your Own Conclusions!
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Here is a cut and paste of the analyst's opinion and conclusion.
The Initial Public Offering of
Transnational Corporation (Nigeria) Limited
An Independently Prepared
White Paper
January 2007
, Intelligent Investing
J9. Opinion
Conducting a review on Transcorp has not been easy and providing the missing gaps
needed to achieve a helicopter view of the facts involved has been any less easy.
We can however suggest a conclusive investment decision at this time, based on the
analysis done in this report.
Transcorp represents a vehicle that promises so much change and opportunity to transform
the business landscape, whilst transferring the wealth of the country into the hands of its
people through the platform of the capital market.
No other scheme, platform or initiative to date, has been able to position every member of
the investing public with the opportunity to:
get a return from the oil produced in the country where all the key players are privately
owned companies. This will be the first time a player in the upstream sector would give
investors a share of the ‘oil dollars’;
get a return from the ever growing telecoms industry where, again, all the key players
are also privately owned and foreign dominated business (except for one – Globacom
Limited, a private and non-quoted company);
get a return from a shipping business, an otherwise capital intensive and exclusive but
highly rewarding business;
get a reward from the largely capital challenging agricultural processing and export
business; and
get a reward from tourism, entertainment and the widely acclaimed/regarded but
underdeveloped movie industry .
The business offer of Transcorp can be looked at from so many perspectives; yet the people
arrive at one seemingly ‘patriotic’ conclusion – “on paper, it is a bankable project”. For this
reason and more, it has been argued that people should invest in the company to give
Nigerians a chance to have a say in how the above deliverables are achieved. The logic is
compelling.
This thinking is an informed one and it naturally dovetails into the second school of thought
who utilizes the argument of ‘collaborative analysis - if that is the case, we should
understand what we will be managing’. The notion that the gains of democracy which
appears to have eluded Nigerians is now within grasps could not be sweeter than the
opportunity to actually influence the course of nation building through the democratic vote
which shareholding confers.
This school of thought has found an unusual ally with the hitherto pessimist group, who
now seem to have a new way of looking at the public offer. In a classic ‘domino effect’
response, they are demanding an answer to the question: What does an investment in
Transcorp translate to?
Clearly, the unspoken concern and risk driver is the unanswered value question in the
Transcorp proposition. At the core, people simply want to know whether Transcorp is
merely an experimental idea or a sound, profitable and sustainable business making its
initial public offering at a significant time in its evolution into a wealth basket of choice.
That is the remit of this report. We hope we have been able to provide an insight into what
Transcorp means to the investor, perhaps much less to the politically astute observer.
January 2007 Page 41
© 2007
www.proshareng.comIt is our hope that the information and analysis contained herein would provide the basis for
much more informed discussion on the subject.
Suffice to say however, we believe that Transcorp will be just one model out of the many
that would be derived from the emergence of mega-corporations in Nigeria in response to
the opportunities presented by the reforms of the financial services sector and the
increasing interest of the local and foreign investment community to unfolding events in
Nigeria.
Any serious business wishing to play in the Nigerian market place must be looking at a
capital base of over N50 billion to be taken seriously in the international market…a
threshold set in motion as a consequence of our reform agenda and the common-sense
capital requirement to turn the potentials identified into viable projects.
There will be more of such companies, including the expanded scope of existing businesses
that will have to respond to the size and scope of the new ‘real’ sector market economics.
Transcorp therefore represents much more than an idea, project or initiative….it is the
clearest attempt at evolving a new market model for business operations in and with
Nigeria. There is a lot more to learn about this phenomenon and it is worthwhile to
remember that reform cannot be carried out overnight, or perhaps even in three to five years
as highlighted by Transcorp, but it can be done.
For example, South Korea and Taiwan inherited large state-owned enterprises from Japan’s
colonial rule, but they managed to dismantle or privatize many of them over the years. The
trade-off between accumulation and distribution (or employment) is always difficult, but
Kim Dae Jung of Korea has shown that the worst abuses can be mitigated by severing some
of the ties between the government and the big enterprises. The listing of the shares of the
company and this public offer provides us some comfort that a significant move has been
made from the ‘usual’ practice.
The relative success of Korea’s reform program can be attributed to the depth of the
financial crisis that occurred concurrently with a defining presidential election. Kim Dae
Jung inherited Korea’s strong government, and he has used the full panoply of executive
powers to push through serious reform. Japan’s political system is often described as “a
web with no spider,” meaning that it has a strong bureaucracy with a relatively weak
executive branch. The situation in Nigeria is precisely the opposite. The president’s powers
are strong, while the bureaucracy is relatively weak. Since President Obasanjo’s re-election
in 2003, the spider has been moving rapidly through the web.
This fundamental difference helps explain the dynamism of Transcorp’s efforts by creating
a platform that eliminates political dithering.
We consider an investment in the shares of Transcorp a good investment but for short term
and long term players for the reasons advanced here. While capital appreciation presents a
pull for the short term investor, a successful execution of the plans and business articulated
here should provide considerable returns for an investor, in the long run.0
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in few years to come.
