Etisalat Group accused of abandoning its obligations to Nigeria and banks

The Etisalat Group, parent company for Etisalat Nigeria has been accused of abandoning its obligations to Nigerian banks and to Nigeria as a country.
The Etisalat Group, on June 20 filed a notice on the Abu Dhabi Securities Exchange of its intention to pull out of their operations in Nigeria without meeting their obligations. Sources in the Nigerian banking industry have told BusinessDay that the action amounts to abandoning the company’s monumental obligations in Nigeria which includes: N541 billion syndicated and bilateral loans approved by 13 Nigerian banks which the subsidiary has been unable to repay and will now be classified as bad debts on the books on Nigerian banks.
The Etisalat Group, by its action is also abandoning taxes and levies due to the Federal Government of Nigeria and regulatory agencies and other third party creditors including; vendors, service providers and contractors.
Sources have told BusinessDay that this amount to ignoring and disregarding the commercial contracts duly entered into Nigeria by the Etisalat Group.
Sources from the banks confirm that the consortium of banks have not been involved in the ownership of Etisalat Nigeria and therefore is in no position to transfer or retain any percentage of Etisalat Nigeria shares. Sources from the banks also confirmed that the consortium of banks have no intention of taking over ownership of Etisalat Nigeria.
While other operators sold their towers and utilized the entire sales proceeds to repay their loans, Etisalat Nigeria in 2014 sold its towers and did not apply the sales proceeds to repay its loan, sources in the banking industry have said.
Etisalat Group’s share price on the Abu Dhabi securities Exchange was among the top 10 performing stocks yesterday, after the company announced that it has been forced by a consortium of banks to transfer its ownership in Etisalat Nigeria to United Capital Trustees.
The company’s share price was up 0.29 percent to close at AED 17.35 (N1, 496.81) Wednesday, with more than 1.5 million of its shares traded, according to data culled from Bloomberg.
“The Nigerian unit has been a drag on the group company,” said Ayodeji Ebo, managing director of Lagos-based Afrinvest Securities Limited. “That they have cut off ties with the Nigerian unit probably boosted investor confidence and lifted their share price,” Ebo said by phone.
“Investors will be inquiring why the company has gone under and when they find it can be linked to the naira devaluation, it raises the country risk,” Ebo added.
The Telco, with a total market capitalisation of 150 billion AED, was not immediately available to give a comment. The company reported net revenues of AED 52.4 billion and net profit of 8.4 billion for 2016.
Etisalat Group which owns 45 percent ordinary shares and 25 percent preference shares in Etisalat Nigeria announced on June 20 that following a default in facility agreement with a consortium of Nigerian banks and inability to reach a restructuring agreement, it received on July 9 an enforcement notice which requires it to transfer 100 percent of its shares to United Capital Trustees by June 15 which was later extended to June 23.
The Group also noted that it has already written off to nil in its books, its shareholding in Etisalat Nigeria with its only financial exposure to its Nigeria subsidiary limited to AED 191 million (N16.5 billion).
Etisalat had been in talks with Nigerian banks to restructure a $1.2 billion trade facility after missing repayments, but those discussions failed to produce an agreement on restructuring the debt.
The company initially asked lenders to convert the dollar portions of its loans into naira to help it overcome the shortage of hard currency on the interbank market but this was rejected by the lenders.
The Telco went on to propose a five percent equity stake to creditor banks, to resolve the debt crisis, but that also collapsed.
A number of firms invested aggressively in Nigeria in the era of high oil prices but are struggling to repay loans or keep operating, as the oil producer suffers from a slump in global crude prices that has hammered its revenues, its currency and dollar reserves.
Dollar loans taken prior a big naira devaluation last June have almost doubled.
Rather than allow its currency float in line with oil prices, like Russia and Kazakhstan, Nigeria introduced a raft of currency controls in defence of the naira. It proved unsustainable and in June 2016, there was an official devaluation that saw the naira shed 40 percent of its value against the dollar.
This meant dollar-indebted companies had to pay 40 percent more in naira terms, to service loans they took up prior the devaluation.
“There were some monetary policy missteps in the past, but that is behind us now,” said Pabina Yinkere, head of institutional business at Lagos-based Vetiva Capital. “Dollar shortages are easing and investor confidence is building again,” Yinkere said.
The United Arab Emirates (UAE) owned Emerging Markets Telecommunications Services (EMTs) had in May 2013, signed a US$1.2 billion medium term syndicated loan facility with banks for its telecommunications firm, Etisalat Nigeria to refinance the existing commercial medium term debt of US$650 million and expand its network.
Banks involved in the loan deal include: Zenith Bank, GT Bank, First Bank, UBA, Fidelity Bank, Access Bank, Ecobank, FCMB, Stanbic IBTC Bank and Union Bank.
The banks are exposed to the tune of US$1.72 billion (N628 billion).
Sources inside the banks say that Etisalat Group, by transferring its shares to a trustee, is trying to externalise the troubles of its Nigerian subsidiary from the group’s balance sheet and avoid liability.
BusinessDay learnt that some of the banks that extended the loans to Etisalat had sought guarantees from the parent company in addition to the collateral from Etisalat Nigeria. However, Etisalat Group may have discharged itself of the guarantees by transferring its shares.
The NCC interceded to get reprieve for Etisalat, scheduling a series of meetings between the telecommunications operator, the CBN and the said banks, to discuss the possibility of payment restructuring.
An Etisalat Nigeria spokesman said the company was still in discussions with lenders to find a “non-disruptive” solution.