$5.2b fine: MTN’s CEO quits

• Why banks can’t fund sanction fee
•Telecoms giant already exposed by $1.7b

THE chicken has come home to roost. What started like one big joke has turned out to be a far cry from ‘business as usual’ as the Group Chief Executive Officer of telecommunications giant, MTN, Sifiso Dabengwa, yesterday resigned his appointment.

This follows the company’s continued poor performance on the Johannesburg Stock Exchange (JSE) in response to the $5.2 billion fine imposed on MTN Nigeria by the Nigerian Communications Commission (NCC) for failing to disconnect unregistered subscribers as directed by the regulator.

Dabengwa, a 57-year-old electrical engineer, had, prior to joining the MTN Group in 1999, held various job positions. A graduate of the University of Zimbabwe, he holds a Master’s degree in Business Administration (MBA) and EDP from University of the Witwatersrand.

He was an independent non-executive director at the Impala Platinum Holdings Limited between January and December 2004 before rising to the position of chief executive officer of MTN Nigeria, the Nigerian arm of the MTN Group between 2004 and 2006.
Dabengwa held the MTN Group CEO position from March 2011 to November 9, 2015.

The NCC has stuck to its gun insisting that the Nigeria subsidiary, the foremost GSM operator in Africa, must pay the N1.04 trillion fine.

Facts emerging yesterday indicate the company will be facing an uphill task getting Nigerian banks to fund the penalty. This is because, according to Renaissance Capital, a South African-based investment advisory company, MTN is already exposed to the tune of $1.7 billion, coupled with Nigeria’s regulatory obligor limits.

According to analysts at Renaissance Capital, as at first half of 2015, MTN Nigeria had gross debt of $1.7 billion, with 74 per cent of the gross debt in Naira, and the balance 26 per cent in dollar.
However, as at the same date, the company has cash balances of $1.3 billion, implying a net debt figure of approximately $400 million, with 94 per cent of the cash in Naira and the balance six per cent in dollar.

Given the net debt position, therefore, consideration must be given to raising external financing to pay the fine through commercial bank loans, debt instrument and equity raise, which would raise the company’s net debt by 1,606 per cent to $5.6 billion.

Already, MTN Nigeria holds three per cent of first half 2015 system’s loans in Nigerian banks, but with the single obligor limit capped at 20 per cent of equity, the company may have exhausted half of its single obligor borrowing limit.

The Sub-Saharan Africa Banking Analyst and Head of Research, Nigeria, Renaissance Capital, Adesoji Solanke, said: “Given the data we have, we think a fine reduction by less than 70 per cent probably exposes MTN Nigeria to more significant funding risks with little available support from Nigerian banks given single obligor limits, capital and liquidity constraints.
“In our view, the ability of any bank to further lend to MTN Nigeria would be dependent on the bank’s capital and liquidity constraints, scale of its extant lending exposure to the company and internal exposure limits.
‘‘Therefore, we think the amount that MTN Nigeria can additionally raise from the Nigerian banking system is probably smaller (32 per cent of the fine) than what it is already owing, considering that it has already borrowed significantly from the larger well capitalised banks today,” he said.

MTN Nigeria, the Nigerian subsidiary of MTN Group was slammed a $5.2 billion fine for failing to meet a deadline set by the NCC, for the disconnection of 5.1 million unregistered Subscriber Identification Module (SIM) cards.

The number of unregistered SIM cards represents 8.5 per cent of its 59.9 million subscribers in 2014 and fine represents 37.5 per cent and 48.1 per cent of the Group’s 2014 revenue of $13.6 billion and 2015 estimate of $10.6 billion.

Although MTN is still in negotiations over the sanctions, investors have already reacted to the news with its shares listed on the Johannesburg Exchange recording a 16.8 per cent loss.

The crisis, which actually started about two weeks ago, was a fall out of the failure of MTN Nigeria, after several warnings from the NCC to disconnect about 5.1 million subscribers found to have pre-registered Subscribers Identification Module (SIMs) cards and incomplete registration details on the network. This led to the NCC slamming a N1.04 trillion ($5.2 billion) fine on the telecommunications firm for the defective SIMs at the cost of N200, 000 per each.

Meanwhile, an industry source, who is closely monitoring developments around the issue, informed The Guardian that Senior Executives of MTN, who are in Nigeria to meet with the regulator to discuss the fine, will decide on whether to make changes to senior management in Nigeria, which is headed by CEO, Michael Ikpoki.

The source informed that there has been serious bickering between the South African top management team and the Nigerian arm about the handling of registration crisis by MTN Nigeria.

Meanwhile, MTN has appointed Phuthuma Nhleko, as Executive Chairman in a temporary capacity.
The telecommunications firm in a statement made available to journalists said: “MTN wishes to inform the market that MTN’s Chief Executive Officer, Mr. Sifiso Dabengwa has resigned.”

The statement quoted Dabengwa as saying: “Due to the most unfortunate prevailing circumstances occurring at MTN Nigeria, I, in the interest of the company and its shareholders, have tendered my resignation with immediate effect.”

The telecommunications firm, which has up till November 16 to pay the fine or face further sanctions, informed that Nhleko had agreed to act as executive chairman for a maximum period of six months to enable the company identified a successor for Dabengwa.

MTN spokesman, Chris Maroleng, told 702 Talk Radio, South Africa, that while Dabengwa took the step to resign as “an honourable” gesture, this did not mean that he was at fault for the unregistered SIM card debacle in Nigeria.

According to the telecommunications firm, Nhleko is no stranger to the business as he served as non-executive director and chairman of MTN from July 2001 until June 2002 and thereafter as an executive director, group president and CEO until March 2011. He has subsequently chaired the Group in a non-executive capacity for the past two and a half years (May 29, 2013).
“I will assume responsibility as Executive Chairman for the next six months as I proactively deal with the Nigerian regulator and will continue to work with them in addressing the issues around unregistered subscribers as a matter of urgency,” commented Nhleko.

Under the new arrangement, Alan van Biljon will continue to serve as the Lead Independent Director on the MTN board of directors, while Nhleko takes over executive responsibility.
“Together with the MTN board, my second priority will be to find an appropriate chief executive officer to take MTN forward. I will then revert to my non-executive chairman role,” Nhleko stressed.

The telecommunications firm reminded stakeholders it would continue to inform them of any material engagements with the Nigerian authorities via the Stock Exchange News Service of the JSE Limited (SENS).
MTN said: “The engagement with the Nigerian authorities on the Nigerian Communications Commission fine is continuing and shareholders will be advised as soon as there are any material developments on this matter.”
The company also advised investors to “exercise caution when dealing in the company’s securities until a further announcement is made.”

The fall out of the penalty has resulted in the decline in MTN shares to about 16 per cent since the fine was made public two weeks, valuing the company at 289 billion rand ($20.4 billion).
Criticisms

It has not been smooth sailing for MTN in Nigeria. Many of its subscribers complain about poor delivery of services. There is also the problem of network congestion, with many cases of poor network connection and drop calls; although this has improved over the years.

The company has also been severely criticised for overcharging its subscribers and has arguably remained the most expensive network in Nigeria. MTN has been fined in the past by the NCC for flouting regulatory orders, among others.

Rating agency downgrades MTN’s profile
Ratings agency, Standard & Poor’s (S&P) has downgraded MTN from ‘BBB’ and ‘zaAA+’ to ‘BBB-’ and ‘zaAA-’ as a result of its operations in Nigeria and other “high risk” environments.
How much is $5bn?
The $5.2bn (N1.04trn) fine MTN is facing is the same as:
• 22%of Nigeria’s yearly budget
• Double MTN’s yearly group profits ($2.69bn after tax)
• $80 for every single MTN customer in Nigeria
• 1.5x Nigeria’s annual capital expenditure
• 95% of Nigeria’s yearly spend on servicing national debt
. $5.2 billion fine exceeded sales of almost $3.9 billion that the operator reported to have made in Nigeria in 2014, which is about 37 per cent of the total revenue.
. Fine represented half of the about $10.7 billion estimated revenue for 2015 for the telecommunications firm. Many believe that the current challenge presents a make-or-mar situation for the telecoms giant.