The share price of Nigeria’s leading ground handling company, Nigerian Aviation Handling Company (Nahco) Plc, has crashed to its lowest price in many years and it’s not stopping yet. A turbulent wave of weak earnings, board crisis and ongoing investigation into alleged economic crimes by the Economic and Financial Crimes Commission (EFCC) is threatening to ground and roll back the gains recorded by the high-flying privatised company. Capital Market Editor, Taofik Salako, reports that alleged corporate governance abuses may further undermine investors’ confidence
Nigerian Aviation Handling Company (Nahco) PLC slumped last week to a low of N2.25 per share, its lowest price at the stock market in many years. With a year-to-date price depreciation of about 39 per cent, Nahco’s decline was within the worst price slump at the stock market, where the average decline this year stood at about 10.9 per cent.
Nahco’s performance was contrary to the upbeat in the share price of the second aviation-related company, Airlines Services and Logistics (ASL) PLC, which has risen by about 38 per cent so far this year. Nahco, until recently, was one of the highpoints of success of the privatisation programme of the Federal Government. It was privatised in 2005 and listed on the Nigerian Stock Exchange (NSE) in 2006.
Nahco’s share price depreciation is majorly driven by two-related issues-weak corporate earnings and ongoing investigation into allegations of corporate governance abuses. The latest earnings report of the company showed significant decline in actual and underlying profitability as the company struggles with sluggish sales. The group nine-month report for the period ended September 30, 2016 showed that profit before tax dropped by 57 per cent to N299.33 million in September 2016 as against N695.55 million recorded in comparable period of 2015. After taxes, net profit dropped by 56.3 per cent from N519.48 million to N227.12 million. Earnings per share thus declined from 33 kobo to 14 kobo. Turnover had declined by 7.0 per cent from N6.32 billion in third quarter 2015 to N5.88 billion in third quarter 2016.
In the eyes of the storm
The EFCC in July 2016 launched investigation into a allegations of economic crimes and corporate governance abuses in Nahco. The petition, routed through the Presidency, raised serious allegations of corruption and corporate abuses. Detectives from the EFCC last month returned to Ikeja, Lagos headquarters of Nahco to further investigation on the allegations of corrupt practices and corporate abuses. Besides the petition levelled against the former chairman and some officials by some stakeholders, the EFCC was also said to be investigating changes in the shareholdings of the company.
The EFCC had arrested and detained the former chairman, Mallam Suleiman Yahyah. As investigation continued into the petition, Yahyah resigned, citing urgent the need to attend to his failing health. The undated resignation notice published by the NSE on October 12, 2016, however neither indicated the effective date of the former chairman’s resignation. The notice stated that Yahyah, who was appointed a director of the company in November 2006 and became the chairman in July 2012, had in recent months come under mounting pressures from his family to step down to enable him receive proper medical attention. He was said to have been “battling with an undisclosed health issue for a couple of years now”. But Yahyah had just presented himself for reelection at annual general meeting of the company, few days before the July 28, onslaught by the EFCC.
With the resignation of Yahyah, the vice chairman of the company, Mr. Denis Hasdenteufel, a French, was said to have taken over the leadership of the board in an acting capacity. But a source said another non-executive director also resigned. While the Nahco’s notice cited health issue, sources said the resignation might not be unconnected with the EFCC investigation.
Allegations of corruption and corporate abuses were said to be at the core of the corporate crisis bedeviling the company. In a response to enquiry by The Nation, managing director, Nigerian Aviation Handling Company, Mr. Norbert Bielderman, a Dutch, confirmed the return visit of the operatives of the EFCC. “The visit of the EFCC to our company had not affected our business in any way. We cooperated with them fully,” Bielderman said in an emailed response.
Allegations of corrupt insider
dealings and abuses
In the petition, some stakeholders had dragged the former chairman to the anti-corruption agency alleging sundry allegations of insider dealings, corrupt enrichment and abuse of trust. The petitioners had called for “a comprehensive, forensic investigation” into several allegations bordering on corporate abuses. Various documents, some of which were obtained by The Nation, were presented to the EFCC to buttress the claims, which made the anti-corruption agency to launch full investigation after the decision that the preliminary investigations and documents raised serious issues for investigations. One of the allegations was on the alleged introduction of Management Support Agreement (MSA) clause into Nahco as a conduit pipe to milk the company’s financial resources by Rosehill Group (RHG); which is owned by the former chairman. It was alleged that in May 2011, the former chairman had sent a draft MSA Agreement to the company secretary for consideration and adoption by the company. The petitioners alleged that against internal and external legal advices, the board railroaded the MSA into corporate agreements by Nahco. An Awolowo road, Ikoyi-based Lagos law firm consulted by Nahco was said to have sent in a five-page legal opinion and advice on the draft MSA which raised serious concerns on the rationale, justifications, insider-dealing issues involved, and the undefined scope of responsibilities of RHG and the 2.5 per cent management fee sought by RHG under the agreement. However, at an extraordinary general meeting held same year in Abuja, the board, acting under the influence of some directors, had railroaded the MSA agreement by telling shareholders that it had been reviewed and endorsed by the company’s legal services, and a firm of external solicitors.
According to the allegations, the MSA was later signed between Nahco and RHG on September 1, 2011 but surprisingly the signed MSA document indicated 3.5 per cent of Nahco’s consolidated net turnover as reflected in its financial statements as management fee payable to RHG quarterly under the agreement as against the 2.5 per cent initially requested by RHG in the draft MSA. The MSA was to run initially for three years with a possible renewal for another three years. However, as the former chairman took over the board’s chairmanship in 2012, the MSA was renewed in 2014 for a term of five years with possible renewal for another five years. In the ‘renewed’ MSA arrangement, RHG became RHG-MSA Limited with alleged links to the former chairman. Besides, the MSA was then extended to cover Nahco’s subsidiaries on the same payment terms as in the initial 2011 MSA document.
The petitioners also raised allegation of gross abuse of trust in the alleged insertion of the Rosehill Group as a shareholder in a Nahco’s subsidiary: Nahco Energy & Power Limited; without payment for such equity participation despite repeated audit queries by Nahco’s external auditors; Howarth, Dafinone & Co. They alleged that same Nahco Energy & Power was used to participate in conjunction with Rosehill Group Limited in the privatisation of the Abuja, and Kaduna Electricity Distribution companies conducted by the former President Goodluck Jonathan administration with approximately $2 million spent and lost by the subsidiary, funded by Nahco, in the privatisation exercise without any contribution whatsoever by Rosehill Group as an equity ‘investor’ in the subsidiary. These issues were said to have raised discontents within the board and led to instability in the company.
The petitioners also alleged that the former chairman has for over eight years been using his firm Rosecom.net Limited to provide internet services to the company, with payment made in advance quarterly. They alleged that the former chairman instituted a culture of profligacy in the group. For instance, they said the former chairman started the practice of paying Nahco and its subsidiaries’ board members sitting allowance in US Dollars, even for board meetings held in Nigeria, against the Central Bank of Nigeria’s regulations against dollarisation of the economy. They alleged that the former chairman also used Nahco and its subsidiaries’ funds and protocol facilities for his personal and relatives’ travels in and out of Nigeria, without separating his personal and official travels as a director of the company in violation of Companies and Allied Matters Act (CAMA) that a director of a company can only be remunerated or reimbursed for official travels on the company’s business.
They also pointed at the recent appointment of the company secretary and general counsel -Mrs Folashade Ode, as executive director, legal and corporate services in disregard of extant provisions of Section 294 of CAMA and corporate governance rules that an individual must not perform both roles in a company. They accused the former chairman of turning Nahco, owned by about 74,000 shareholders including two foreign airlines – Air France and Lufthansa, into his personal private business by appointing his family members and surrogates into strategic businesses of the company. According to the petition, in disregard to extant laws and rules on separation of the office of the non-executive chairman from the management and day-to-day running of the company, Yahyah was allegedly intervening in the operations of the company.
Regulatory investigation
A copy of the petition, which was addressed to the President of the Federal Republic of Nigeria, was later forwarded to the Securities and Exchange Commission (SEC), Nigeria’s apex capital market regulator. In its response, which was sent to the EFCC and copied to the Presidency and other agencies, SEC also weighed in on the propriety or otherwise of the MSA and the appointment of Mrs Ode. While SEC cleared Nahco of sundry corporate governance abuses in the areas of composition and working of the board of directors and the initial process for the MSA, the apex regulator faulted the process for the renewal of the MSA. “However, we are not satisfied that adequate due diligence was observed in the processes leading to the signing of the second management agreement. This is because the second management services agreement was not subject to the transparent process as was the case in the first one,” SEC stated. The Commission indicated that it will direct Nahco to subject the second MSA through the full corporate governance process. SEC also faulted the appointment of Ode. “These two positions cannot be effectively managed by one individual as the SEC Code of Corporate Governance provides distinct responsibilities for each of them,” SEC stated. The Commission also indicated it will “advise” the company to appoint a new company secretary. Many stakeholders had criticised the dovish stance of SEC on the two issues. SEC did not make any declarative order on the continuing running of the MSA, even after declaring it as faulty. Besides, compliance with SEC’s Code of Corporate Governance is compulsory, not advisory.
Checking the facts
The Nation’s check indicated that almost three months after the SEC’s investigative response, the company has continued with the designation of executive director, corporate, legal services and company secretary and has not complied with the SEC’s advice. A check on RHG indicated that Yahyah was the chairman and founder and he was the only person listed under the company’s people and management. There was no evidence of any similar management support service to any other company as the management support, corporate governance and advocacy division of the RHG showed no track records of activities. The full Memorandum of Understanding (MoU), a 30-page document, on the MSA, which falls under a major decision beyond board consideration, was not provided to all shareholders for scrutiny. Besides the 3.5 per cent MSA fee, the MSA also stipulated that Nahco “shall bear the responsibility for such costs reasonably incurred by RHG-MSA in the performance of the services”, thus transferring the costs of operations of RHG-MSA indirectly to Nahco. According to their profiles, RHG and Yahyah have no previous technical competencies or track records in ground handling and Nahco-related services.
In the latest report ended September 2016, Nahco paid MSA fee of N81.46 million for the nine-month period. It paid N105.93 million for MSA for last year. In 2014, Nahco had paid N77.68 million for MSA. While the annual reports identified Yahyah as the beneficiary of the MSA, the reports did not provide any descriptive details of the “technical services” upon which the MSA was based. The company reports also confirmed Yahyah as indirect beneficiary of the Rosecom.net Limited’s agreement as his brother Mr Aliyu Yahyah, is director of Rosecom.net. The total transaction value and outstanding balance to Yahyah’s RHG was N316.22 million and N305.33 million in 2015 and 2014 respectively. Total dividend payouts to all shareholders were N324.8 million and N295.3 million in 2015 and 2014. Yahyah’s RHG owns 9.52 per cent shareholding in Nahco. Altogether, the six major shareholders in the company own 37.36 per cent shareholdings, leaving about 63 per cent in the hands of small and minority retail shareholders.
Management response
Bielderman said no other director had resigned after Yahyah. He reiterated the company’s release that Yahyah’s resignation was due to health reasons. Bielderman, who took over as MD in 2015, also defended the MSA. “The issue of MSA is a common practice among corporate entities. It is not limited to Nahco. In our own case, the proposal was brought before the board and it was approved,” Bielderman stated. Nahco, no doubt, will remain in the eyes of the storm until the conclusion of all investigations and the issuance of direct and conclusive reports by all agencies. SEC has indicated that it will review any further development in the company’s case while the EFCC continues its investigation. The way forward for Nahco may be to start the compliance process with corporate governance issues already identified, but this may also be a tough call given the state of the board now. A source told The Nation that the directors may meet in the weeks ahead before the end of the current business year, with possible major changes in the management leadership. It is indeed a trying time for the time-tested ground handler.