Etisalat, banks tango over crushing $1.3bn loan

The dollar denominated debts of telecommunications companies are beginning to suffocate their operations as the weakening naira increases their debt obligations.
In the last few years, Nigeria’s telecommunications took syndicated dollar denominated loans from Nigerian banks but the weakening naira and the fact that their revenues are mainly in naira despite servicing the same loans in dollars as well as challenges in accessing dollars to repay their interest obligations is making business difficult for some of the telecom operators.
In December 2013, the inter-bank US dollar to Nigerian Naira rate was N160 to $1 but currently the interbank rate stands at N305 to $1, causing debts to almost triple in value from the time the loans were taken.
“Etisalat currently has obligations to pay debt instruments which the company took in dollars from banks at a time when the Naira was favourable. But as you know, the value of the naira to dollar has significantly dipped over time and ATCON has been clamouring for the need to make foreign exchange available to operators,” Olusola Teniola, President of Association of Telecommunications Companies of Nigeria (ATCON), told BusinessDay in a telephone interview.
According to Teniola, “there are other operators facing the same or similar issues and Etisalat is presently engaging in talks with the said banks to resolve the issue.”
The United Arab Emirates (UAE) owned Emerging Markets Telecommunications Services (EMTs) in May 2013, signed a $1.2 billion medium term syndicated loan facility with 13 Nigerian banks for its telecommunications firm, Etisalat Nigeria to refinance the existing commercial medium term debt of 650 million and expand its network.
In 2013 when Etisalat collected the loans, the naira equivalent was N192 billion but may now have ballooned to N366 billion based on the current interbank exchange rate, assuming that no part of the loan has been repaid.
“While the value of the loans has more than doubled, the company’s earnings, which are in naira remain largely unchanged because it has not increased tariff over the period to repay the loans which it collected to expand its network”, said a telecom expert familiar with the industry.
Ibrahim Dikko, vice president for regulatory affairs at Etisalat Nigeria, told Reuters that Etisalat missed payments due to an economic downturn, currency devaluation and dollar shortages on the country’s interbank market.
“The current outstanding on the syndicated loan is about $500 million. This is because we have been repaying since then, not that we just took the loan and never paid. I can’t really say the percentage that has been paid. We are in discussion now. We are in discussion on our syndicated loans facilities with our bankers; Nobody has taken over our operations right now, it is not an outcome anybody is hoping for and we shall continue to focus on managing our operations while discussions are on-going.”

“We are in discussions with our bankers and have been doing that for quite a while. They have not taken over the business and we are hoping that we can resolve the issue and find a way to renegotiate terms,” Dikko said.
Emirates Telecommunications Group (Etisalat) owns a 40 percent stake in its Nigerian affiliate, which accounted for around 3.7 percent of the group’s revenue in 2013.
Dikko said the business performed well last year and it was still in profit at the level of earnings before interest, tax, depreciation and amortisation (EBITDA), while loan repayments had been up to date “until recently”.
He said that the company was now looking at “all the options”, which could include converting the loan into naira, but did not want to anticipate the outcome of talks with the lenders.
A banking source with knowledge of matter said Etisalat Nigeria had given notice to Nigerian lenders that it would miss a payment in February which triggered a debt discussion, adding that they were yet to agree on terms.
“We want to see more skin in the game from the foreign parent. They also have a shareholder loan we want them to convert into equity which would put less pressure on cash flow and its receivables,” the banker said.
Sources say banks want Etisalat to increase its stake in its Nigerian affiliate in order to reduce the risk of the company pulling out of the country due to the debt issue.
MTN in its 2016 financials put the depreciation of the naira from 2013 to 2016 at 95 percent and within the same period, MTN says its tariffs for data has declined by an average of 84 percent while tariff for voice has also declined by an average of 25 percent putting significant pressure on revenues and profit margins.
MTN booked foreign currency losses of approximately N43 billion in its 2016 financials, which it attributed to “USD denominated third party borrowings and payables.”
Industry experts say securing bank loans is not a new trend as telecoms operators all over the world, take loans to facilitate operations, growth and expansion.
However, in Nigeria the unfavourable operating environment and challenges caused by the instability and unpredictability of the domestic currency and unavailability of foreign exchange have made operators unable to service dollar denominated debts.
Apart from the inability to pay back loans as a result of foreign exchange scarcity, the Nigerian Communications Commission (NCC) has attributed the degenerating Quality of Service (QoS) provided by mobile network operators to the inaccessibility to foreign exchange by operators.
Umar Danbatta, Executive Vice Chairman (EVC), NCC asked the Central Bank of Nigeria (CBN) to ease its foreign exchange policies and make foreign exchange readily available to telecommunications operators who need it to purchase vital operational infrastructure.
Hassan Jamil, Chief Technical Officer (CTO), MTN Nigeria said one of the reasons why the quality of service from operators is dropping is because foreign exchange cannot be transmitted to vendors.
“The demand for both voice and data services are on the rise but we are unable to catch up on investment because of scarce dollar availability,” Jamil said.
Many Nigerian businesses have recently struggled with access to dollar for their operations. But the Central Bank of Nigeria has in the last two weeks significantly increased its supply of dollars in the interbank marketing selling US$1.14 billion worth of dollars in the last two weeks in a bid to reduce the scarcity of the hard currency in the inter bank market.