The consortium of 13 banks that lent Etisalat Nigeria $1.2 billion have decided to seek legal action against Mubadala for abandoning its shares. The banks may have decided to pursue this option as the CBN last week asked them to stay action against the telco. Etisalat’s offer to pay $58.9 million as final settlement of its debt was also rejected by the banks.
Why go legal?
An article from the Nation suggest the banks, having realised a hostile takeover might not work as probably perceived, have now decided to use the legal option. They also considered the fact that Etisalat’s license is not transferable making a takeover extremely difficult and expensive. The banks also allege that Mubadala, the parent company of Etisalat Nigeria, has a pattern of abandoning companies when they run into trouble. Some critics of Mubadala also allege that the company had already made its money back from Nigeria over the years, via branding rights, technical fees, technological transfers and other means, making it easy for them to write down their Nigerian entity to zero. To therefore stop them from getting away with this alleged modus operandi, they opine a legal action might be the way out.
How it could work
A source quoted by The Nation also reports that the banks could explore a Mareva injunction against Mubadala. A Mareva injunction is basically a freezing injunction and is a court order preventing a defendant from transferring assets until the outcome of the associated law suit is decided. The injunction is typically used by creditors who want to stop foreign investors who default in their loans from dissipating their assets when they transfer the assets to region outside of the jurisdiction of the courts or the creditors.
In the case of Mubadala, the banks will have sought to beg the court to stop Mubadala from selling any of its assets pending determination of this case. This essentially freezes Mubadala’s assets abroad forcing them to come to the table to renegotiate. The Mareva injunction is also widely used in Nigeria and has been legal tool since the Supreme Court case of Sotiminu v. Ocean Steamship (Nig) Ltd in 199220. It is also a major tool the EFCC uses in freezing assets of suspected corrupt officials or money launderers. More on Mareva injunction
How does this favour the 13 banks?
Taking Mubadala to court may end up as a long drawn pyrrhic victory for the consortium. Legal proceedings take time, and are expensive considering the international nature of the case. The legal proceedings may also discourage any potential investors from taking a stake in the company. Being on a standby mode could lead to the company losing both market share and value, as the telecoms sector is a very dynamic one.
The diplomacy needed to solve such matters is also not available as President Buhari is currently indisposed and the Acting President sensing the fragile security situation in the country and the need to placate foreign investors, especially from Asia, may not want any more burden. Some point to the fact that at the height of MTN Nigeria’s battle with the Federal Government over a billion dollar fine imposed by the Nigerian Communications Commission (NCC), South Africa’s President Jacob Zuma had to intervene. The Nigerian government may also be unwilling to intervene, because Mubadala is a Sovereign Wealth Fund and such action could strain the relationship between both states.
Mubadala Development Company commonly known as Mubadala was established in 2002 as a National Wealth Fund owned by the government of Abu Dhabi which is part of the United Arab Emirate (UAE). The fund is active in over 30 countries, and currently owns assets worth over $100 billion.