MTN Nigeria’s equity-linked notes crash to 6-year low

The troubles of MTN Nigeria appear unending, as the price of its equity-linked note fell the most in at least six years, to $13 per linked-note in the third quarter of 2016.
MTN Nigeria equity-linked notes (ELN) are mostly held by Nigerian shareholders who receive dividend payouts in dollars.
“There has been a significant decline in MTN Nigeria’s linked notes which trade over the counter in the Nigerian financial market,” said Tajudeen Ibrahim, head of equity research at investment firm, Chapel Hill Denham, in an interview with BusinessDay.
“The price is down to $13 per linked-note, from $20.33 in the second quarter of the year and $26.9 a year ago,” Ibrahim added.
The average price of $13.4 per linked-note in the third quarter represents a 35 percent decline (quarter-on-quarter) from $20.33 in the second quarter and year-on-year decline of 100 percent from $26.9 in the third quarter of 2015.
“The regulatory headwinds the Telco has faced in recent months in Nigeria is the reason for the steep decline and the CBN’s action to suspend it from repatriating dollars out of the country deals a further blow on investor confidence,” said Esili Eigbe, a director at Lagos-based Exotix Partners Limited by phone.
BusinessDay investigations reveal that MTN is yet to pay dividends on its linked-notes this year, due to squeezed earnings brought on by the Nigerian fine and the devaluation of the naira.
The Central Bank of Nigeria (CBN) suspended the company from taking dollars out of the country last week, until the probe by the Senate, which accuses MTN of illegally repatriating $13.9 billion, is resolved.
The indefinite suspension is a knock on investor confidence, analysts say, and is joined by a poor financial performance in the first half of the year, to make for a perfect storm in 2016.
“If you take out the fine the company paid in its Nigerian unit this year, earnings would not have been so severely damaged,” Ibrahim of Chapel Hill Denham said. MTN reached an agreement with the Nigerian authorities to pay a total fine of N330 billion over the non registration of SIM cards.
The N330 billion includes the “goodwill” payment of N50billion earlier made by MTN to the government.
The balance of N280 billion will be made in six tranches in a staggered arrangement, which will last till May 31, 2019.
By the terms of agreement, MTN will pay N30Billion into NCC’s Treasury Single Account (TSA) with the Central Bank of Nigeria (CBN) 30 days from the date of the agreement dated June 10, 2016, which was due in July, making a cumulative N80 billion the Telco paid to Nigeria as fines in the first seven months of 2016.
This impacted the Group’s earnings adversely and its shares have fallen by more than 14 percent after then, to their lowest level in more than six years
The balances of the payments are due on March 31, 2017, when MTN is expected to pay N30 billion.
In March 31, 2018, it is to pay another N55 billion and on December 31, 2018 it will pay N55Billion. Subsequently, March 31, 2019 it will pay N55Billion and the balance of N55 bn will be paid May 31, 2019.
But while MTN is still struggling with the fines, the Senate raised fresh allegations of misconduct, with authorities accusing the operator of illegally moving an estimated $14 billion out of the country without authorisation.
Dino Melaye, the Nigerian politician who raised the motion, accused MTN of repatriating the money over a period of ten years, beginning in 2006, with the help of four different banks.
MTN Nigeria’s CEO, Ferdi Moolman, refuted the allegations, saying “they are completely unfounded and without any merit.”
But the Senate has commenced an investigation into the alleged “unscrupulous violation” of Nigeria’s Foreign Exchange Act.
However,  legal experts tell BusinessDay that MTN has not breached the Foreign Exchange Act law of 1995.
“The law allows for guaranteed and unconditional transferability of foreign currency. So what is the justification of the CBN in authorising the company’s banks to suspend dollar repatriation?”
Section 15, sub-section 5 of the Foreign Exchange Act of 1995 states that “foreign currency imported into Nigeria and invested in any enterprise pursuant to subsection 1 of section 15 of the FEA, 1995, shall be guaranteed unconditional transferability of funds through an authorised dealer in freely convertible currency relating to dividends or profits attributable to the investment, payments in respect of loan servicing, remittance of proceeds and other obligations in the event of a sale or liquidation of the enterprise.”
The group’s share price was down -0.71 percent to 11,500 rand (N268,633) as at 2pm on Wed, Nov. 2 in Johannesburg, from a previous close of 11,582 rand (N270,549) on Tuesday, according to Bloomberg data.