Banks shun meeting with NCC over Etisalat

Nigerian banks owed by Etisalat have shunned a meeting with the regulator, the Nigerian Communications Commission (NCC) accusing it of pursuing an agenda aimed to “shield a debtor from creditors” which are exposed to the tune of $1.3 billion.

According to one of the CEOs of the banks, “there was no point attending the meeting because we did not want to play into their hands. It is clear that the NCC is only interested in protecting the debtors at Etisalat.”
The bank chief said it was unfair for the commission to enter into a matter that has not been formally brought before it and in a manner that showed that they at the NCC have no interest whatsoever in protecting the depositors fund extended to Etisalat as loan.
He added, “the banks have not said they want to take over Etisalat, so it is presumptuous for the NCC to be making pronouncements about how and how not a take over can be carried out. We are not seeking to transfer shares which we do not hold.
“All we are asking Etisalat to do is to pay us the money they owe and because they have failed to do this so far, the banks have the option to enforce their security.”
BusinessDay learnt that the banks seek to appoint a receiver, appoint a new managing director and chief financial officer for Etisalat for the simple reason that the cashflows must be protected.
Meanwhile, 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 amounts to ignoring and disregarding the commercial contracts duly entered into in Nigeria by the Etisalat Group.
Sources from the banks confirm that the consortium of banks has 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. 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 utilised 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.
But information obtained by BusinessDay shows that Etisalat Group’s planned exit from Nigeria over a loan default is very similar to what it did in Tanzania three years ago.
In 2014, Etisalat’s Tanzania unit, Zanzibar Telecom (Zantel) defaulted on a $96 million loan, which spiralled into a debt crisis resulting in Etisalat Group agreeing to sell its 65 percent stake in Zantel to Swedish telecommunication and media company, Millicom.
Millicom acquired $32 million in net current liabilities at close of the deal, Etisalat said in an emailed statement at the time.
A similar financial crisis has hit Etisalat’s Nigerian Unit, after $1.2 billion in trade loans taken from a consortium of 13 banks went bad, after a big naira devaluation last June caused dollar loans to balloon.
Zantel was coincidentally the fourth largest Telco at the time, as Etislat Nigeria is, with some 23 million subscribers and a 14 percent market share.
Globacom, owned by Mike Adenuga, Africa’s third richest man serves 37 million subscribers, while Bharti Airtel accounts for 34.3 million. MTN, the South-African owned Telco, offers services to some 60 million Nigerians and is the largest Telco by market share.
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, which is today.
Etisalat has 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 the lenders rejected this.
The Telco went on to propose a five percent equity stake to creditor banks, to resolve the debt crisis, but that also collapsed.
The Etislat Group, which generates 3.7 percent of its revenue from Nigeria, is said to have questioned the rationale of investing more in Etisalat Nigeria, when asked by banks to recapitalise its affiliate as an option, sources told Reuters.
However, UK-based frontier and emerging markets investment firm, Exotix Capital, has said the impact of the medium-term seven-year facility secured by Etisalat Nigeria from the consortium of 13 banks is manageable on the balance sheet of Nigerian banks.
The firm said the impact of the $1.2bn syndicate loan out of which about 42 per cent ($504m) has been repaid, was “modest”.
“We estimate a modest impact on banks. At a headline level, loans to Etisalat Nigeria represent 1.9 percent of aggregate bank loans. Likewise on our sensitivity analysis, the Etisalat loans would on average have a -12 percent, -2 percent and -0.3bp impact on our full year 2017 forcast net profit, equity and capital adequacy ratios for the banks, respectively.
“The banks should easily be able to absorb a shock of this magnitude,” head of Equities Financials Research, Rahul Shah and Equity Research Analyst, Jumai Mohammed, disclosed.
Ibrahim Dikko, vice president for regulatory affairs, was quoted by Reuters yesterday as saying Etisalat currently owed banks around $575 million and talks with lenders were ongoing.
The total amount of debt outstanding was $227 million and 113 billion naira ($359 million), he told Reuters in a phone interview.
Exotix says Etisalat Nigeria 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.
One telecom analyst said Etisalat Nigeria could struggle to find new investors, putting lenders in a weak negotiating position, although the company could be viable if acquired by one of its rivals.
Another option could be to restructure the loan, pending any new investors coming along, Exotix said. Etisalat Nigeria has initiated changes to its shareholding structure.
Renaissance Capital analyst said Etisalat could be worth $1.2 billion based on an enterprise value to operating cashflow multiple, compared with South Africa’s MTN and other African peers.

 

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