Etisalat Nigeria faces narrow M&A options post-debt default

The options open for Etisalat Nigeria, for acquisition or mergers with telecom rivals operating in the country are slim, according to financial analysts.

Etisalat Nigeria faces a hunt for a buyer and operator, after a consortium of 13 creditor banks took control of the 45 percent stake owned by parent company, Emirates Telecommunications Corp. following the failure of restructuring talks, over a $1.2 billion loan.

A consolidation between an existing telco and Etisalat, may be in the works, according to sources with knowledge of the matter, who tip Airtel and Globacom to be in pole position for the hobbling telco.

This way, the sources say, both telcos will stand a better chance of competing against the dominant operator, MTN.

Etisalat Nigeria has 20 million subscribers, according to regulator the Nigerian Communications Commission (NCC) making it the number four mobile operator, with a 14 percent market share.

MTN Nigeria, has 47 percent market share, and Globacom, owned by Africa’s third richest man, Mike Adenuga, accounts for 20 percent.

Airtel – a subsidiary of India’s Bharti Airtel – lays claim to 19 percent of the total market. Nigeria’s mobile-phone subscriber numbers fell to 152 million at the end of March 2017 from about 154 million the previous quarter, according to the NCC.

If Airtel acquires Etisalat, its market share could swell to 33 percent and could finally hit its 100 million target for subscribers in Africa, set after $7 billion worth of investments in 15 African countries in 2010.

The India-based telco’s current Africa subscriber base was a little over 80 million in the first three months of 2017, according to data compiled by BusinessDay and sourced from the company’s financial statement.

But financial analysts note that Airtel may not be eager to acquire Etisalat’s operations in Nigeria.

“Africa continues to be a pain point—with external factors (currency fall, economy weakness with crude fall) compounding an already tough competitive and regulatory environment,” Swiss-based Credit Suisse said in a report on Airtel this year.

Airtel may have bitten more than it could chew, when it bought into Zain assets in Africa, and is unlikely to add to that strain with an Etisalat acquisition, a Lagos-based telecoms analyst told BusinessDay.

“It is still repaying the $8.5 billion debt it took to make those acquisitions and is unlikely to move for Etisalat in its current state,” the analyst said.

One India-based analyst, in a note this year, even suggested that Bharti Airtel should start looking into how big a haircut they are willing to take to get rid of some its African assets.

Airtel was not immediately available to respond to questions along these lines.

Renaissance Capital values Etisalat Nigeria at $1.2 billion, based on an enterprise value to operating cash flow multiple, compared with South Africa’s MTN and other African peers.

Nigeria’s second largest telco, Globacom, may also balk at a deal of this size, as it has financial challenges of its own, analysts say.

Regulatory barriers make an MTN buy unlikely, given that such an acquisition would take its market share in Nigeria to 61 percent, breaching the NCC’s dominant player regulation.

“The NCC will not permit a sale to MTN, which is already classified as a dominant operator and is treated with asymmetrical regulation,” a source from one of the big three Telcos told BusinessDay by phone.

If MTN took up Etisalat, it would have 61 percent market share and about 80 million subscribers. “MTN would become a monopoly and regulators won’t allow that,” the source added.

Etisalat Group which owns 45 percent stake 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. This was later extended to June 23.

The Group said it has 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).

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.

Etisalat Nigeria said it had serviced its debt obligation up until February 2017. The outstanding loan sum to the lenders stands at $227m and N113bn, a total of about $574 million if the naira portion is converted to US dollars.

The company initially asked lenders to convert the dollar portions of its remaining 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.

The banking consortium will embark on a search for a buyer as companies in Africa’s most-populous nation battle an economic downturn sparked by falling oil prices, a lack of access to dollars and high inflation.

The UAE group, which generates 3.7 percent of its revenue from Nigeria, had questioned the rationale of investing more in the local unit, when asked by lenders to recapitalise its affiliate as an option, sources said.

Exotix, a UK-based investment firm, said the company had struggled with several years of losses, due to low revenue, tough competition and more recently, currency losses, adding its second-biggest shareholder Abu Dhabi state investment fund Mubadala has been trying to divest its stake for some time.

 

LOLADE AKINMURELE