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Novafone Deal Dead: Ellen Gives Thumbs Down Amid Tax Evasion Charge

Novafone Deal Dead: Ellen Gives Thumbs Down Amid Tax Evasion Charge

Monrovia – President Ellen Johnson-Sirleaf has apparently sided with the court of public opinion that the controversial plan by the Liberia Telecommunications Corporation (Libtelco) to takeover one of the struggling cellular phone companies in Liberia, Novafone, is a bad one.

FrontPageAfrica has reliably learnt from multiple sources that the President has rejected the deal in its entirety, declaring to aides that it is not in Liberia’s best interest and has killed plans by Libtelco to sanction a sale. One source stated that the President through a communication instructed Acting Finance Minister James Kollie to immediately terminate all negotiations regarding the Novafone deal. The source fell short of revealing what prompted the decision by the President but did say that the President instructed the Minister to revoke any instruction that has already been given or approval of the deal immediately. Shutdown Over US$1M Tax Evasion The news of the termination of the deal came on the same day that the Liberian Revenue Authority found the company in the web of tax evasion of over US$1 Million. The closure comes amid assertion by the LRA that the entity is ready to go after delinquent tax payers. FrontPageAfrica has reliably learned from LRA sources that the company was shut down Thursday for its alleged failure to settle its tax obligation of US$1.3 GSM fees allegedly accrued from 2012-2014. A reporter who visited the offices late Thursday found locks on the gate. The source indicated that officers of the tax enforcement division of the  LRA backed by court order from the Tax  Court at the Temple of Justice walked into the premises of the company  during the morning hours and ordered the staff out of the various offices and shut down the office headquarters in Congo Town. Another report suggested that the offices of the GSM Company is expected to be open on Friday morning after the management of the company had made some initial payment but the source which hinted FrontPageAfrica has failed to state the amount paid so far. The closure of Novafone comes barely a week after the Ministry of Justice and the Liberia Revenue Authority wrangled over  which government arm is responsible for  prosecuting delinquent taxpayers. Prosecution-Jurisdiction Issues A well-placed source from the Justice Ministry who spoke on the basis of anonymity told FrontPageAfrica that the slow pace in the prosecution of delinquent tax payers have been squarely blamed on the LRA over the jurisdictional issue. “I want to say that the reason why delinquent taxpayers are paying lip-service to paying taxes is that the LRA claimed that they are responsible for the job and not the Justice Ministry” said official speaking on condition of anonymity Thursday. An official of the Tax Court who also preferred anonymity stated that the rise in the cases of delinquent tax payers should not be the blame of the Tax Court who by law is responsible to prosecute delinquent tax payers. “Let me clearly state here that the Tax Court is not responsible to collect government taxes but the Liberia Revenue Authority (LRA) said the source. But an LRA official told FrontPageAfrica during its investigation the long list of delinquent tax payers on the docket of the Tax Court does not automatically mean closure of business houses when there is compliance. “The revenue law provides that when business house is in compliance with its delinquent tax payment, there is a need to cooperate with those business houses” said the source closed to the LRA. Novafone Mum Meanwhile there has been no official statement from the Management of the Navofone regarding Thursday’s shutdown. With this latest closure, observers are of the belief that this may dampen the company which has been trailing the leading GSM firms, Lonestarcell/MTN and Cellcom for market share. FrontPageAfrica recently reported that the deal, was valued around US$30 million with the company reportedly to receive US$5 million up front, with the remaining balance expected to be paid to the company within a year. But Mr. Sebastian Muah, Managing Director of Libtelco when contacted by FrontPageAfrica said the amount being speculated is wrong. According to Mr. Muah, the deal is actually valued at around US$10 million with US$7 million being paid to the struggling cellular company upfront and the balance US$3 million set to be paid at a later date. Despite the value issues, it appears the deal has hit a snag although it is not clear whether it was due to the low figure or financial disadvantage some feared for Liberia or whether the President’s decision was political The deal comes just weeks after the acquisition of another local cellular phone company, Cellcom Liberia by Orange Group via its Orange Cote d’Ivoire The deal, according to sources would have been financed by four local banks IB, LBDI, Ecobank and GT Bank which will be providing guarantee for the purchase. FrontPageAfrica reported recently that that once the deal was sealed, the National Social Security and Welfare Corporation (NASSCORP) will replace Ecobank as guarantor. According to knowledgeable sources close to the transaction, only US$500,000 will be paid as taxes to the government of Liberia.   The taxes will be based upon a principle in finance known as capital gains.  That is the tax you pay for selling an asset, and the actual amount is dependent on whether the gains are short or long term. Complicated Deal from the Start Complications of the deal have prompted the attention from the national legislature. The Senate recently reached a unanimous decision to halt ongoing discussions by Libtelco to purchase Novafone. The Senate’s decision, according to a motion, is to give the committee on Post and Telecommunications, chaired by Senator Nyonblee Karnga-Lawrence of Grand Bassa County the chance to gather the needed information as it relates to discussions surrounding the alleged US$10m purchase of Novafone by Libtelco. The probe came as a result of a communication written by Maryland County Senator, Dan Morias, who informed plenary that the Senate has been left out of the discussion surrounding the alleged purchase of the cellular company. Senator Morias’ communication stated: “Moreover, Liberia, being a Republic, practices free market economic principles. It beats our imagination that we will get involved, not in failed government institutions, but rather join the free market of purchasing failed institutions as Novafone GSM and thereby transferring its liability to the people of Liberia.” He further asked his colleagues to use their oversight responsibility to arrest a situation he described as one near catastrophic proportion. The communication, after a brief discussion on the floor, was sent to the Committee on Post and Telecommunications. Industry watcher say the financial valuation of Novafone is unclear, with challenges in determining the current market value based upon future cash flows or its maximum earnings potential. In the technology industry, companies sell at many multiple of their current earnings, since the market position of the company is important.   In a moribund economy such as Liberia, with Novafone only having a small share of the market and with negative cash flows, it is troubling to some analysts that the Liberian government would purchase such an asset with guarantees from an SOE without much public debate or understanding. Initially, Lonestarcell/MTN had reportedly expressed interest and came close to purchasing the company but the deal reportedly fell through the cracks after Lonestar rejected the offer and said it was unwilling to pay an extra US$3million for the switch as part of the package. Libtelco, as part of the deal would have offload 60 percent of the deal to Vodafone, a British multinational telecommunications company operating currently in 26 countries and has partner networks in over 50 additional countries. Settling for Less Mr. Muah had previously explained that the balance sheet of the company will remain as is and the liabilities and receivables on the balance sheet will be assumed as part of the deal which essentially would have been the same as an going concern if the company continued to operate as is. But many industry analysts are wondering why the government and Libtelco are settling for less when Lonestar had a reported US$18 million on the table? But Muah explained that the deal is straight-forward. “Our understanding of the Lonestar/MTN deal, the core network equipment was not part of the deal and Lonestar was willing to leave the modern core equipment, and again just buy Novafone out of competition for about $16-18 million dollars, ignoring loss of jobs and the network equipment valued at $9 million.  This would put the value of Novafone at worse case $25 million or ideal case $27 million.  We went for $24 million - million less than the worst case.” According to Muah, the talks and negotiation on the acquisition was initiated since last October when news that its competitor Lonestar/MTN embarked on similar effort to buy Novafone out of the market and make the Liberian market a two-player market. Libtelco owns a 20% interest in the Cable Consortium of Liberia, which owns and operates the cable landing of the ACE Cable system in Monrovia, was completed in 2012. The company is currently using its existing ownership over cable ducts in the Monrovia area to construct a fibre-optic communications network that will connect to the cable system. Rodney D. Sieh, This email address is being protected from spambots. You need JavaScript enabled to view it.; Kennedy L. Yangian This email address is being protected from spambots. You need JavaScript enabled to view it.

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