$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.
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