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Stakeholders fault Etisalat’s $1.2b debt management, investments’ claim

By Chijioke Nelson and Adeyemi Adepetun
31 July 2017   |   4:30 am
The controversy dogging Etisalat’s $1.2 billion alleged “Non-Performing Loan” with 13-bank syndicate group has remained unsettling as stakeholders raise suspicion of incompetence, connivance and overstatement of investments.


• Attribute debt saga to ‘intrigue, incompetence’
The controversy dogging Etisalat’s $1.2 billion alleged “Non-Performing Loan” with 13-bank syndicate group has remained unsettling as stakeholders raise suspicion of incompetence, connivance and overstatement of investments.

While there is a “tactical” nationalisation of the telecommunications company, with the Central Bank of Nigeria and Nigerian Communications Commission in the lead, the move has been described as mainly efforts to avert job and associated economic losses.

Besides, it is also flagging lack of uniformity in loan requirements in banking industry, where collateral is prerequisite for small businesses with small capital requirement, while the so-called big organisations are handed national wealth based on recognition and flexible agreement.

While banks involved in the deal have opted for “no comment” response, citing ethical issues in banking relationship disclosure, an apex bank source said it is no business of CBN on how they settle with their customers, even as the current intervention is purely of national economic emergency.

A source who claimed knowledge of the deal, said the dilemma started when after few years of operations, Etisalat claimed to have invested over $2 billion in the Nigerian telecommunications sector.

In 2013, Etisalat took a syndicated bank loan of $1.2 billion (N192 billion) from a consortium of 13 banks for the purpose of refinancing its existing loans at that time and funding its network expansion.

Of the $1.2 billion loan, $600 million was secured by assets (N115 billion) and pledged shares ($235 million) of the parent company, according to the source.

“There are obvious signs that the banks did not commit the foreign investor (with majority stakeholding) in whatever agreement, which is negligence. Otherwise, Mubadala Group would have remained liable. It is still obvious that the proceeds of the Etisalat towers sold to IHS Towers, was repatriated wholly without offsetting debts in the banks.

“As a telecommunications company, the major asset is the towers, followed by cash-flow projections. Now you see, the towers were sold.

“Of course, this syndicate group would be likened to a ‘mad group’. This is why it is neglect on their part to allow the sale of the towers in the first place. It is either the banks have incompetent representatives or there is a criminal intent,” the source said.

The same source noted that a second intriguing scenario played out, suggesting that both sides in the issue are not genuine, when two major banks in the syndicate group, in April this year, at a shareholders conference call, said Etisalat loan is performing.

“How come less than two months later, they are talking about taking over the company? Etisalat has repeatedly said it has paid more than 40 per cent of the entire loan portfolio, which banks have not forcefully refuted, but still held on to $1.2 billion figure. Who is telling the truth?

“It is doubtful that Etisalat invested the $2.5 billion it claimed in Nigeria. But even at that, about 40 per cent interest on shareholder loan to that amount, added to $500 million proceeds of the towers is enough to recoup the investment. That is why Mubadala could go easily. There is something that is not clear,” the source said.

The Chief Executive Officer of Financial Derivatives Limited, Bismarck Rewane, noted that the mere mention of the United Arab Emirates-investment company- Mubadala Group and the viable product in the name of Etisalat, banks expectedly, would tumble over themselves to lend them money.

He said that it may be possible that in the frenzy of being a part of the company’s liability, a level of caution sort of, was thrown in the wind and perhaps, not realising that the sector can change or be changed dramatically.

Although subject to suspicion, the way the foreign investor pulled away, according to Rewane, may have been a strategy to cut short its losses.

“The company needed recapitalisation and the Nigerian shareholders were not forthcoming. Mubadala may have concluded that it is a Nigerian operation and Nigerians should bail out their own.

“There is a tale of negligence that cannot be ignored. The fact that Etisalat sold its towers, which is a major part of its assets, at $500 million and banks may not have gotten anything from it is something that we cannot explain. Maybe, they know better,” he said.

A top source from a competing telecommunications company told The Guardian that Etisalat’s assets across the country are worth the collateral, but noted that banks cannot make anything from them if they seize or dispose them.

“The issue of securities for the debt is not the subject matter. By business and asset base, they can get loans, even on recognition, provided the terms of repayment are stated. This is a company, which turnover is put at between N15 billion and N20 billion yearly.

“The issue is that even us are battling the same challenge and it is about foreign exchange. Do you know how much has been added to the exchange rate now compared to the time the deals were reached?” the source queried.

The Managing Director of Afrinvest Securities Limited, Ayodeji Eboh, said a sizable part of the loan was dollar denominated and at rates around N155 per dollar in 2015, while from 2016 till now when things have gone bad, they have been battling with plans to increase tariff.

“The situation is compounded not only by income stream, but the challenge of exchange rate, which has to do with purchase of equipment and payment of debts denominated in dollar,” he said.

Etisalat’s cash flow was said to have been significantly pressured, with a flat report in 2016, while a further impact of foreign exchange bloated related costs.

Telecommunications industry sources, who expressed shock over sudden withdrawal of the majority shareholder, said such is tantamount to abandonment of the company’s monumental obligation in Nigeria.

An expert, Kehinde Aluko, told The Guardian that the action is a lesson for other companies, as slow and steady growth is better, while a strong management team and acceptance of venture capitalists that will stand by them are important.

“A major problem with Nigerian companies is that they like to cover up crises. Rather than addressing the problem they deny it and say everything is fine. It’s long we heard that Etisalat is in troubled waters but the management kept assuring Nigerians all is well. But, obviously, it was not.

“If they had admitted and asked for help, the Nigerian government may have stepped in earlier enough to rescue. You cannot say that the Central Bank of Nigeria cannot order the banks to tarry a while before they take over Etisalat. However, it was very late before they admitted that something was indeed wrong.

“If AMCON intervenes, the banks will have to take some hair cut, which by estimate, might range between 10 per cent to 20 per cent of individual banks’ exposure,” he said.

The telecoms expert is also of the opinion that a loan to equity conversion can also be explored in the settlement or an outright restructuring of the loan.

“This last option has been the best practice in the banking system; however, the option depends on the prospect of the venture. If the banks restructure the facility, they will have to make provisions for it in the interim – which buy estimate, will only be for a limited per cent of the exposure given the viability of the venture and the securitization,” he added.

Meanwhile, with the change of brand to 9Mobile, the embattled telecommunications firm would migrate its 21 million subscribers to the new platform.

The President of the National Association of Telecommunications Subscribers of Nigeria (NATCOMs), Chief Deolu Ogunbanjo, while welcoming the development, urged the new management to ensure good corporate governance is entrenched in the new system, stressing that good perception in terms of quality of service and tariffs Etisalat was known for should not be rubbished or diminished on the new platform.

The NCC has now reassured the over 21 million subscribers on the Etisalat Nigeria network that it is committed to exercising its full regulatory powers to guarantee stable and quality services by the operator.

“The Commission has taken proactive steps to cushion the impact of the takeover. This is without prejudice to the ongoing effort between Etisalat and the banks toward negotiated settlement.

“In view of the recent development, NCC wishes to reassure all stakeholders in the telecommunications sector in particular the subscribers on the Etisalat Network that the Commission will ensure that the integrity of Etisalat Network is not compromised,” the Director of Public Affairs at NCC, Tony Ojobo, said.