Home Finance ALSCON: True value may scuttle privatisation

ALSCON: True value may scuttle privatisation

by Business News Report

By Omoh Gabriel, Business Editor.
The decision of the federal government to revert to Rusal as the preferred bidder for ALSCON, may be scuttled if the government continue to insist on a higher price for the complex. Facts emerging from the international community disclosed that the complex have been grossly over valued by the federal government at US$410 million. The actual market value of the complex has been estimated at $140 million by Standard Bank of London indicating that the federal government intend to realise a premium of $270 million from the sale. Rusal was previously disqualified by the BPE for submitting conditional bid and reducing its financial bid from $205 million to $160 million when it was asked to riview its bid with the BFIG group which bided also for the complex for $205 million. The minister of Steel and Power yesterday said that the federal government will negotiate with Rusal for the sale of ALSCON. Meaning that the government may have to acced to the US$160 million bid price of Rusal and put naside the $410 million for which the government agreed to sell or Rusal will have to up its price to acceptable minimum or reserve price of $250 million.
Facts available indicate that Rusal was advised by its bankers Standard Bank of London that the complex was wort
Vanguard investigation show that Standard Bank, London in a letter to Rusal said “At your request, and pursuant to the letter agreement, dated 8 June 2004, between Standard Bank London Limited (“Standard”) and Rual Trade Ltd. (“Rual”), together with the terms and conditions attached thereto (collectively, the “Agreement”), we have analysed certain financial information regarding the Aluminium Smelting Company of Nigeria Limited (“Alscon”), as set forth herein and submit this letter on our findings.The purpose of this analysis is to express an independent opinion (the “Opinion”) on the fair market value of Alscon as a going-concern, as more particularly described below. The term “fair market value”, as used herein, is defined as the amount at which the entire equity interest (the “Interest”) of Alscon would change hands between a willing buyer and a willing seller, each having reasonable knowledge of all relevant facts, neither being under any compulsion to act. No representation is made herein, or directly or indirectly by the Opinion, as to any legal matter or as to the sufficiency of any definitions for any purpose other than setting forth the scope of our Opinion hereunder.
“In connection with the Opinion, we have made such reviews, analyses and inquiries as we have deemed necessary and appropriate under the circumstances. Among other things, we have:

*reviewed the Information Memorandum on Alscon as prepared by First Atlantic Bank Plc in 2003;
*met with or spoken to certain members of the senior management of Rual and its affiliates to discuss the operations, financial condition, future prospects and projected operations and performance of Alscon;
*reviewed AlsconÃìs audited but qualified financial statement for the year enied 31 December 2003, which the management of Rual and its affiliates has identified as being the most current financial statements available, and certain other financial information of Alscon;
*reviewed forecasts and projections based on information sourced from Alscon and prepared by the management of Rual and its affiliates for the six months ended 31December 2004 and for the years ended 31 December 2005 through 31 December
*reviewed certain other publicly available information, including financial and operating data for certain guideline companies and guideline transactions; and
*conducted such other studies, analyses and inquiries as we have deemed appropriate”.
Continuing Standard Bank wrote “We have relied upon and assumed that the financial forecasts and projections provided to us have been reasonably prepared and reflect the best currently available estimates of the future financial results and condition of Alscon, and that, other than as specifically disclosed to Standard in connection with the Opinion, and in writing prior to the date hereof, there has been no material change in the assets, financial condition, business or prospects of Alscon since the date of the most recent financial statements made available to us. We have not independently verified the accuracy and completeness of the information supplied to us, nor have we made any physical inspection or independent appraisal of any of the properties or assets of Alscon, and we do not assume any responsibility to do so”.
According to Standard Bank “In our analysis of the Interest, we have taken into consideration the income and cash-generating capability of Alscon. Typically, an investor contemplating an investment in a company with income- and cash-generating capability similar to Alscon will evaluate the risks and returns of its investment on a going-concern basis. Accordingly, after due consideration of other appropriate and generally accepted valuation methodologies, the value of the Interest has been developed primarily on the market and income approaches.
We valued the Interest as if Alscon was, and will continue to be, a going-concern, meaning that the underlying tangible assets of Alscon are presumed, in the absence of a qualified appraisal of such assets, to attain their highest values as. integral components of a business entity in continued operation and that liquidation of said assets would likely diminish the value of the whole to the shareholders and creditors of Alscon.
All valuation methodologies that estimate the worth of an enterprise as a going-concern are predicated on numerous assumptions pertaining to prospective economic and operating conditions. Our Opinion is necessarily based on business, economic, market and other conditions as they exist and can be evaluated by us as of the Valuation Date (as hereinafter defined). Unanticipated events and circumstances may occur and actual results may vary from those assumed. The variations may be material”.
Standard Bank further said “Based upon the inveàtigation, premises, provisos, and analyses outlined above, and subject to the attached “Limiting Factors and Other Assumptions,” it is our opinion that, as of 11 June 2004 (the “Valuation Date”), the fair market value of the Interest is reasonably stated in the amount of One Hundred and Forty Million United States Dollars (US$140,000,000)”.
The London based bank said “ Standard acknowledges that the purpose of the Opinion is to provide an independent assessment of the fair market value of Alscon and that, in connection therewith, it may be necessary for Rual to disclose the Opinion to its affiliates, advisors and consultants involved with the evaluation of Alscon and to certain members of the Government of Nigeria, provided that any such disclosure shall not permit any third party to rely upon the Opinion for any purpose”.

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