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OPTION 2, NEGOTIATE AND INJECT CASH UPFRONT
This option is better than Option 1 as it is likely to strengthen relations with the government. It
saves S$5,096 million compared to Option 2 but it requires an upfront cash payment that must

be injected by Group (Treasury) into Nakolia. The political and regulatory risk arising from the
fine warns us to be very careful. The fine is not only unprecedented, the new government itself

is unprecedented. Any offer that specifically bounds us to pump more money into Nakolia from
outside appears to reinforce our concerns about heightened political and expropriation risk in
that country. We should rather be looking to ring-fence Nakolia, account for the fine in its books

primarily and only raise money from inside Nakolia to pay the fine; and certainly not from group
or elsewhere.

OPTION 3, NEGOTIATE AND STAGGER PAYMENTS BUT LIST ON EXCHANGE
This option is similar to Option 2 in that both represent some sort of negotiated settlement that
could strengthen our relations with the government of Nakolia except that both will only give us

12 months to comply meanwhile we need the full 24 months available to us in Option 1. The
option however is more expensive than Option 2 but puts less strain on our cash flows as it

allows us to stagger the payment over 3 years, ignoring time value of money. Unlike option 2, it
does not impose any requirement that payment be injected from Group and hence it alters our
political risk calculus. However, the imposed condition that we must list MCOM Nakolia on the

Nakolian Stock Exchange (NSE) reignites our political and expropriation risk calculus especially
because it requires that 60% of MCOM Nakolia shares be put on free float. This will certainly
open that subsidiary to a risk of corporate takeover; even if the Nakolian government chose to

not take advantage of our vulnerability in that market. It should be noted that listing on the NSE
will have the benefit of increasing the marketability of MCOM Nakolia which could enhance its
value and benefit the MCOM Group. Furthermore, it could help demonstrate MCOM's deep

commitment to support the economy of Nakolia which could further strengthen our relationship
with the government and people of that country, bringing with it beneficial spin offs to the MCOM

group brand wise, differentiation wise, socially and certainly economically.

OPTION 4, PULL OUT OF NAKOLIA
MCOM could threaten action to pull out of Nakolia and indeed carry this out especially if the

other 3 options become untenable. There are a few exit arrangements open to MCOM should it
come to this. Each can be considered in relation to the minority interest protections in the
existing shareholder compact that governs the relationship between the MCOM Group as the

principal shareholder and the minority shareholders:

Developed by The CharterQuest Institute for 'The CFO Case Study Competition 2016'
www.charterquest.co.za | Email: thecfo@charterquest.co.za