With A Whopping USD 5.2 Billion Fine Hanging On Its Neck, MTN Needs A Lifeline It Cannot Borrow


MTN is facing a lot of challenges, apart from the fact that the company has been dethroned by Vodacom as the biggest mobile carrier in Africa by market capitalisation, the company’s shares tanked after Nigeria pulled the plug on negotiations to resolve the 5.2 billion fine slammed on the company by the Nigerian Communications Commission, NCC.

In the early part of Q1, the company was caught in the middle of a row between Nigeria’s parliament and its executive arm of government. MTN went into negotiations with the government through Abubakar Malami, Nigeria’s Minister of Justice and Attorney General. MTN reportedly offered to pay about USD 1.3 billion out of the USD 5.2 billion total fine in separate tranches of cash, purchase of some of Nigeria’s external debt and alongside network access for the government. As a matter of fact, unofficial sources within the company suggested that the company might be quoting its stock on The Nigerian Stock Exchange.

However, trouble started for MTN after the country’s House of Representative, lower chamber of the parliament, disowned the entire negotiation process as one sided and illegal. The house since then summoned MTN to its chambers but with the complicated scenario, the company’s new CEO could not accede to the request to attend the public hearing.

President Jacob Zuma’s visit to Nigeria in March 8th to 9th did not do much as it further brought out the dossier of allegations and grouse the Nigerian government had and still has with MTN.

After the news circulated the market yesterday, the company’s shares according to Bloomberg reports declined as much as 2.9%, the most since May 12, and traded 1.5%  lower at 126.50 rand as of 10:23 a.m. in Johannesburg, valuing the company at ZAR 233 billion rand approximately USD 15 billion.

The major challenge MTN will be facing if it ends up agreeing to pay the entire fine is, how to manage the huge debt in its balance sheet. The company is running on a net debt of about USD 125 million in Nigeria alone. The possibility of paying the fine in full will puts its Nigerian operation in near perpetual debt. As its cash cow with over 57 million subscribers, the company needs a lifeline out of this quagmire.

vodacom vs mtn
Source: MTN Group Shares Vs Vodacom. Source: Bloomberg. T&C applies

In its Q1 2016 earnings call with analysts, the group’s subscriber rate decreased by 1.4%. Nigeria was the major contributor to the negative number with 6.9% decrease from 61 million. Nigeria only contributed 11.9% of the group’s total revenue due to apparent challenges.

MTN would require more than smart PR and diplomacy, structurally, its business model of voice-centric and catch up with data as a revenue driver must be looked into, the market in Nigeria is over-marketed, a new direction is needed even if the company makes out of the problem with minimal bruises.

[pdf-embedder url=”https://pageone.ng/wp-content/uploads/2016/05/MTN-Q1-2016.pdf”]

Featured image:www.namibian.com.na



The content on this site, including news, quotes, data and other information, is sourced by PageOne from official and public sources and other third party content providers for your personal information only, and is not intended for trading purposes. Content on this site is not appropriate for the purposes of making a decision to carry out a transaction or trade. Nor does it provide any form of advice (investment, tax, legal) amounting to investment advice, or make any recommendations regarding particular financial instruments, investments or products.

Leave a Reply

Your email address will not be published.