N541.8BN ETISALAT DEBT THREATENS DIVIDEND PAYOUT TO BANK SHAREHOLDERS

For the past several months, Nigeria’s fourth largest GSM provider- Emerging Market Telecommunictions Services Limited (EMTS), otherwise known as Etisalat, has been in the news. This time, it is for the wrong reason.

The company has been in and out of meeting rooms with its bankers to resolve issues around a $1.3bn or N541.8bn debt to 13 Nigerian banks, which arose from a 2013 facility to refinance existing loans ($650m), while the balance was for provision of working capital and network expansion.

Following the failure to resolve the matter amicably after several meetings that involved the Central Bank of Nigeria (CBN) and the National Communications Commission, regulators of the nation’s banking and telecoms industries respectively, in a bid to restructure, the loan is as good as bad and doubtful.

The banks must therefore provide for the loan, with unpleasant implications for their books at the end of 2017 financials, following which they are required to make provisions, thereby wiping out their profit. This would further affect the ability of the banks to pay dividend to their shareholders.

Those close to the deal, on Wednesday expressed worry that lenders involved in the deal are those who have consistently paid dividend to shareholders and who may be forced to break their tradition.

Guaranty Trust Bank facilitated $138m of the loan, according to reports; Access Bank extended $131m; followed by Fidelity Bank with $56m; Stanbic Bank, $24m; FCMB, $15m; and Union Bank, N3.9bn; while the share of Zenith Bank; First Bank; Ecobank Nigeria; Mainstreet (acquired by Skye Bank); First Securities Discount House (FSDH); and Keystone were undisclosed.

On Tuesday, Etisalat Group, majority shareholder of EMTS (70% stake in Etisalat Nigeria (EMTS), announced the takeover of the company by the banks in a filing to its home country’s Abu Dhabi Securities Exchange in the United Arab Emirate.

While insisting that they are not interested acquiring the shares or managing Etisalat, which is not their core competence in such business, or frighten foreign investors, a source close to the consortium insisted that the lenders are interested in recouping the facility since it was extended using depositors’ funds.

Also, although Etisalat Group said efforts by EMTS to restructure the repayment of the syndicated loan by a consortium of banks to its Nigeria arm collapsed, sources close to the deal told investdata.com.ng that the telecoms giant seemingly displayed bad fate and an unwillingness to repay, as if the debt should be written off.

Another source expressed disappointment that Etisalat Group, having recouped its investment in Nigeria may be planning to dump its Nigerian arm, pointing to similar pattern in Tanzania, where something very similar occurred recently.

For example, Reuters, on June 5, reported plans by the UAE telecom operator to sell its 85% stake in Zanzibar Telecom Limited (Zantel) to Sweden's Millicom for miserly $1 in cash, while the new owner takes over the operators’ total debt obligations of $74m under the terms of the agreement.

For the Nigerian arm, industry watchers also recall its 2015 transfer of 555 telecom towers (masts) to IHS, the second tranche of a sale and leaseback deal announced a year earlier, without stating the financial value, as part of its strategy to improve network quality.

The masts were part of a deal by Etisalat Nigeria to sell 2,136 of its towers to IHS and lease them back as part of plans to expand its coverage in Africa's biggest economy in August 2014.

The transfer is part of efforts to reduce building and maintenance, associated with security costs and electricity shortages, as revenue per user was on the decline.

Experts believe that Etisalat Nigeria could have used revenue from the sale of its masts to reduce its debt, pointing to rival and local arm of India's Bharti Airtel Limited, which sold its over 4,800 mobile phone masts in the country for $1.05bn, as part of its plan to cut costs and pay down its debt.

BY KINGSLEY IGHOMWENGHIAN, INVESTDATA.COM.NG