For the past few weeks, Etisalat Nigeria has been in the news, not for the right reason, but rather over the news of a takeover bid by a consortium of Nigerian banks. It was reported that the telecommunication company got a $1.2 billion medium-term syndicated loan facility from 13 banks, which include, First Bank, Zenith, Guarantee Trust Bank, United Bank of Africa Plc, Fidelity Bank Plc and Access Bank. The company took the loan to refinance an existing commercial medium-term debt of $650 million and continue its network rollout across the country. It has since defaulted in making payment, thereby forcing the banks to report Etisalat to the Central Bank of Nigeria (CBN) and the National Communications Commission (NCC). So far, three commercial banks have come out to reveal how much Etisalat owes them. Etisalat collected a syndicated loan of 40 billion naira from Access Bank, 42 billion naira from GTB and then 17.5 billion naira from Fidelity Bank.
Following the threat by the banks to take over the telecommunications company for failing to repay the loans, CBN invited officials of the NCC, Etisalat, and the banks to its Lagos office in order to resolve the issue. The meeting ended on the note that Etisalat will not be taken over by the banks, at least for now. However, according to reports, the banks have opposed a proposal by Etisalat Nigeria to convert part of a $1.2 billion loan from dollars to naira. They want the Abu Dhabi telecoms group and its other shareholders to recapitalise it instead.
Why the CBN and NCC got involved
According to reports, the company has been unable to repay its loan due to the forex shortage that has hit Nigeria. From all indications the CBN needs to be involved in this discussion because businesses are having Forex issues due to the stringent policies it (CBN) has put in place. The NCC is also worried as this could mean that the telecommunication sector is about to be hit by a financial crisis and this could make investors lose interest in Nigeria’s telecommunication sector. It is also worth noting that there are about 23 million subscribers who could be affected if anything happens to Etisalat. As it stands Etisalat seems to be the biggest foreign victim hit by dollar shortages in Nigeria.
Etisalat also owes IHS
Surprisingly, apart from owing these commercial banks, the company also owes tower firm, IHS Nigeria. This was made known in a press statement released by the company, IHS. IHS said that it has experienced volatility in terms of timing of settlement of invoices with certain customers that obviously include Etisalat. It also said that it has more than 120 days overdue from Etisalat worth $2.4 million.
In 2014, the World Bank lent $200 million to London-based African tower manager, IHS, for the acquisition of about 2,100 tower sites from, Etisalat Nigeria. Under this Masters Lease Agreement, Etisalat sold its tower assets to IHS, while IHS leased it back in exchange for lease rentals. IHS also has a $800 million bond which is partly securitised from the cash flows of the Etisalat lease.
“We do experience volatility in terms of timing of settlement of invoices with certain customers. We have a strong relationship with Etisalat and it has continued to make some payments under our Master Lease Agreements. As of 31 December 2016, $8.5 million was more than 120 days overdue from Etisalat. This amount represents less than 2.5 percent of the expected proforma full year combined revenue of the group for 2016,” a press statement from the company stated.
This suggests that $8.5 million was owed to the Holdco Group out of which $2.4 million was owed to the FinCO Group, which is its Nigerian entity.
According to Reuters, JP Morgan analyst, Zafar Nazim, said that it had downgraded IHS bonds due 2021 because of Etisalat Nigeria as it was uncertain whether the company could keep up with lease commitments.
Fitch Rating Agency also released a statement saying that IHS faces limited risks to its operations in Nigeria following recent press reports that Etisalat Nigeria had missed a debt payment. It assigned a rating of B+/Negative to IHS debt.
“We believe IHS may experience delays in collecting payments from Etisalat Nigeria over the short term, but medium-term prospects should remain broadly intact. Should Etisalat Nigeria go into bankruptcy proceedings, we believe its creditors would want to maximise recovery prospects by continuing normal mobile network operations, which include payments to IHS for use of its tower infrastructure,” Fitch Rating said in a statement.
Etisalat is yet to give a statement on the ongoing debt issue. It is also unknown whether the telco, which owns 45 percent stake in Etisalat Nigeria, after converting its loan to equity in February would remain in the country. According to Reuters, two sources confirmed that the Abu Dhabi telecoms group may sell its stake in Etisalat Nigeria, but wants the company’s debt restructured before it does so.
The telco owns 14 percent market share, Airtel 19 percent, Globacom 20 percent and MTN has 47 percent.