Two weeks to a deadline to pay a $3.9 billion fine imposed by the Nigerian telecommunications regulator on the nation’s largest mobile network, MTN Group Ltd., there is still a lack of clarity on an issue that threatens to bankrupt what was once the poster boy of foreign direct investments (FDI) into the country.
The Nigerian Communications Commission (NCC) the country’s telecommunications regulator,had fined MTN $3.9 billion and given a December 31 deadline to pay for failing to switch off unregistered mobile-phone customers. The fine was revised down from an original penalty of $5.2 billion.
WSTC Financial Services analysts say that without an immediate equity injection, the cash payment required by the NCC implies that MTN Nigeria will be thrown into negative networth on January 1, 2016.
“The fine may threaten the continued existence (as a going concern) of one of the most prominent foreign direct investment (FDI) stories in the country. We are not aware of any instance in world corporate history, where a regulatory corporate fine immediately bankrupts the offending entity,” Olutola Oni and Motunrayo Giwa of WSTC, said in a Dec. 16 note to clients.
“We condemn in strong terms, the form of corporate unruliness or laxity in corporate governance that was exhibited by MTN in flouting the “mutually agreed” rules on the infractions. However, we are of the opinion that regulatory sanctions should be guided by due considerations to the proportionality of sanctions in relation to the offence, and to a reasonable extent, the operational capacity of the liable entity.”
WSTC, in its report, notes that the fine ($3.9 billion) is equivalent to 42.2 percent of MTN Nigeria’s market capitalisation, 455.7 percent of its net assets and 94.6 percent of 2014 revenues.
The strain to pay the fine could also trigger loan covenants from the company’s existing creditors and further aggravate the solvency position of the company, according to WSTC.
In a sign of mounting financial pressures MTN Group Ltd., had its credit rating cut by Moody’s Investors Service yesterday.
The rating was lowered to Baa3 from Baa2, Ivan Palacios, with the outlook negative an analyst at Moody’s in Madrid, said in a statement on Tuesday.
The change reflects “the increased operational and sovereign risks from one of its key markets, Nigeria,” Palacios said.
“The outlook could be stabilised if matters surrounding the Nigerian fine are clarified and resolved with limited or manageable implications to MTN’s Nigeria and group operations, as well as to their credit and liquidity profiles.”
Renaissance Capital bank analyst, Adesoji Solanke, says the consensus view from Nigerian banks is that MTN cannot avoid not tapping on external funding, specifically from the parent, to settle the fine.
“This, in addition to a combination of some domestic borrowing from banks and possible issuance of commercial papers and/or corporate bonds are the options we think the company could consider.
“ That said, our analysis suggests that MTN would struggle to raise a significant portion of the fine domestically, even if we include pension funds in the mix (maybe 10-15% of the fine amount),” Solanke, who heads the research desk in Nigeria, said in a Dec 4 note to investors.
MTN Group Chairman Phuthuma Nhleko has been running the company and leading talks over the fine with Nigeria’s authorities since Chief Executive Officer, Sifiso Dabengwa resigned last month.
The company’s value has dropped by about a quarter since the penalty was announced in October and is heading for its first year of losses since 2008.
Fitch cut MTN’s rating one level to BBB- last week because of risks in Nigeria and South Africa. The outlook remains stable at Fitch. The company has a BBB- rating at Standard & Poor’s.
PATRICK ATUANYA
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