Nigeria’s telecommunication giant, MTN, recently made history after the Global Credit Ratings (GCR) awarded it the highest possible long-term and short-term ratings.
The international rating agency upgraded MTN Nigeria’s national scale long-term issuer ratings to AAA, further affirmed its national scale short-term rating of A1+, and assigned the national scale long-term rating of the N110 billion Series 1 Senior Unsecured Bond to AAA with a stable outlook, the first by any mobile network operator in Nigeria.
“The ratings accorded to MTN Nigeria reflect its very strong competitive position as the leading provider of telecommunications services in Nigeria, as well as its strong earnings and cash flow which has supported a robust financial profile,” GCR, said.
The ratings, according to Nigeria’s largest mobile network operator, demonstrate the resilience of its business and positions as the benchmark of reference for the information and communications technology sector for long-dated and fixed-term instruments.
“As we continue to invest in our network and strengthen our risk management processes, we remain focused on sustaining and accelerating growth in line with our Ambition 2025 strategy,” Karl Toriola, Chief Executive Officer, MTN Nigeria, said, adding that the Telecom company was “delighted with the outcome of the GCR rating.”
The impact of the GCR ratings is not only positive for MTN Nigeria but the telco industry in Africa’s largest economy and the Nigerian economy which requires increased productivity to grow at a rate that will be above its population growth.
The ratings from the South African-based agency tend to impact MTN Nigeria, the telco industry and the economy of Africa’s most populous nation in the following ways.
MTN Nigeria
The new ratings accorded to MTN Nigeria by GCR is beyond just a record for the telco but rather a cheque that increases its bargaining power with future investors. The telco company can take its new rating to the capital market and will be able to raise cheap funds as the rating is likely to increase investors’ confidence about its risk, management and its entire operations.
Read also: MTN Nigeria bags highest possible credit ratings by CGR
“It is a very strong cash-generating opportunity which reflects good governance and minimal risk in our business. It gives us the ability to raise debt and capital at a lower rate because of a lower risk premium,” Toriola said.
An opportunity to raise cheap funding would mean a reduction in the finance cost of MTN Nigeria. Reducing costs could lead to an increase in profitability.
The telco giant plans to raise capital from the debt market following its plans to invest $1.5 billion in Nigeria over the next three years to expand broadband access across the country. It is also eyeing at least 2 million retail investors in Nigeria ahead of its plan to sell 14 percent of shares in its local unit on the Nigerian Exchange Group (NGX).
Meanwhile, MTNN’s first quarter (Q1) profit before tax grew 34 percent year-on-year to N103 billion. The key drivers were reduction in net finance costs to N30 billion, an 11 percent year-on-year reduction, sales growth of 17 percent year-on-year, a 90-basis points year-on-year earnings before interest, taxes, depreciation, and amortisation (EBITDA) margin expansion to 53.1 percent.
Its profit after tax (PAT) for the review quarter expanded by 43 percent year-on-year, thanks to a 433-basis points reduction in the tax rate to 28.4 percent.
Telco industry
The telco operators in Nigeria have done a great deal in growing their subscribers over the years and consequently achieving milestones. As of 2001, only about 400,000 Nigerians had telephone lines from the defunct Nigerian Telecommunications Limited (NITEL). In 20 years, Nigeria has about 208 million active lines.
With a subscriber base of over 74 million, data by the Nigerian Communications Commission (NCC) put MTN Nigeria as the operator with the largest market share at 39.66 percent. As a result, an improvement in the company’s performance will be a boost for the entire sector.
In two decades, the largest Telecom operator in Nigeria has served over 76.5 million people in the nation. According to its audited financial states for the period ended December 31, 2020, the company has also created jobs for over 2.5 million individuals in Nigeria.
MTN Nigeria has contributed over N2.3 trillion in taxes, levies and fees. Over 8,392 investors are showing diverse growth in services since there are no necessary limitations in the funding of the company. The company has kept on delivering qualitative services.
While technology and telecommunication has developed globally, MTN Nigeria has expansively covered 88.9 percent in the 2G population coverage; 80.4 percent in the 3G population coverage, and 60.1 percent in the 4G population coverage. MTN Nigeria was also the first network service provider to construct the 5G trial in the whole of West Africa.
Nigeria’s economic growth
The telecom sector in Nigeria has been growing double digits every quarter since Q2’ 2020. It grew 18.1 percent, 17.36 percent and 17.64 in the second, third and fourth quarter of 2020, helping to lift the economy out of the pandemic-induced recession as other sectors contracted.
As the largest player in the sector, MTN Nigeria’s contribution to the Nigerian economy cannot be overemphasized. Continuously on the rise, the telco’s contribution to the Nigerian economy will likely improve following the benefits accompanied with the GCR ratings, investment analysts said.
Despite government policy that stifled the telecom sector growth in the first quarter of 202, the sector was on the list of those that helped the Nigerian economy to expand by the 0.51 percent that was reported by the National Bureau of Statistics (NBS) in Q1 2021.
According to the telecom’s data by the state-funded stat office, the sector growth rate slowed to 7.6 percent in Q1 2021 compared to 9.7 percent growth in Q1 2020.
But, with the opportunity to raise cheap funds following the new rating accorded to MTN Nigeria, its investment in the Nigerian economy is expected by analysts to help drive economic activities and productivity.
“MTN plans to invest between $1.5 billion to $1.7 billion in the next three years in our network and our focus is always going to be on customer service and service quality,” Toriola said.
The CEO of the Nigerian arm of the South African company said MTN Nigeria would be accelerating its rural coverage expansion with specific solutions designed to provide cost-effective services in the rural communities in a way that they can afford to use telephone services.
“MTN believes there are significant opportunities in the rural area,” he said.
MTN Nigeria is also targeting retail investors through its planned 14 percent share sales in its local unit on the Nigerian Exchange Group (NGX).
It is also not surprising that MTN Nigeria will be focusing on this segment of the economy given that many potential retail investors fall within the financially excluded population the country is making efforts to address. Nigeria now has about 45 percent of its total population financially excluded.
Comments by analysts
Ayorinde Akinloye, investment research analyst at United Capital
The rating is positive for the telecoms sector reflecting the strong growth of the sector over the past years as well as the positive outlook for the sector. The implication for MTN means the company can now raise domestic debt at a cheaper cost given the improved credit rating.
A Lagos-based investment analyst
This is positive for MTN equity and debt holders. MTN has issued both Commercial Paper and Bonds this year and it’s looking at issuing shares to retail investors. This will further boost the confidence of these investors and increase interest.
Yinka Ademuwagun, investment management analyst at ValuAlliance
This means that MTN can borrow cheaply from the market.
Given their new credit rating, they can go to the market and be able to bargain for a rate that is lower than what they would have had and this is positive for the company’s finance cost and the ability to drive earnings going forward.
That would be positive for the overall GDP and especially for the telecom subsector. This is because the Nigeria arm of MTN was the one that was rated GCR; with the rating, they can access cheaper capital, and when they get it, which is expected, the funds will be invested in Nigeria and that is positive for economic activities.
It is also important for the MTN group because, despite the regulatory challenges it has faced in Nigeria, it has been able to manoeuvre and withstand all the regulatory challenges that have been thrown its way.
