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MTN escapes Nigerian phone dispute with $1.7bn settlement

Shares jump 21% on the news.

MTN Group agreed to pay a 330 billion naira ($1.7 billion) fine in cash to the Nigerian government, a third of the original penalty, removing a major uncertainty hanging over the phone carrier’s operations in its largest market.

MTN rose 13% higher to R140 at the close in Johannesburg, the biggest gain since 2008, valuing the company at R258 billion ($17 billion).

Africa’s biggest mobile-phone company will also start the process of listing shares of its Nigeria unit on the country’s stock exchange, Johannesburg-based MTN said in a statement on Friday. The fine will be paid over three years and will be funded by cash flow from local operations, the company said.

“This is the best compromise amount the company could have hoped for,” Martin Roberts, senior Africa analyst at IHS Country Risk, said by phone from London. “It’s a further sign of their commitment to stay in Nigeria that they’ve agreed to list on the stock exchange, which is a long-standing goal of the government.”

The agreement ends eight months of start-and-stop negotiations with Nigerian officials over how to settle the fine, which was levied for missing a deadline to disconnect 5.1 million customers unregistered in the country. Chairman Phuthuma Nhleko returned to the company he used to run to oversee the process, hiring former US Attorney General Eric Holder to lead negotiations. The deal was signed in the Nigerian capital of Abuja and is supported by the telecommunications regulator and the country’s attorney general, Nhleko said on a call with reporters.

MTN’s battle with Nigerian authorities over payment of the fine had caused a weakening of the stock price by a third amid a lack of clarity about the negotiations and posturing by Nigerian politicians. The government originally issued a $5.2 billion penalty and later lowered it to $3.9 billion. MTN offered $1.5 billion in March, made up of $750 million in cash and the balance in the form of various investments.

“This is the best outcome for the company,” Nhleko said in the statement.

Nigerian lawmakers are continuing an investigation into the circumstances surrounding the fine regardless of the settlement, said Saheed Fijabi, chairman of the House of Representatives’ communications committee.

“We just want to ensure all was done in good faith,” he said by phone from Abuja.

MTN “certainly hopes” the probe won’t affect the fine agreement, Nhleko said.

MTN Nigeria’s local listing will be carried out when market conditions are appropriate and won’t result in the parent company losing control of the unit, the chairman said.

Funding Pressure

MTN was hit with the penalty for being slow to disconnect customers as Nigeria sought to cut off service to some users while fighting crime and militant attacks in a country with poor identity records. The insurgent group Boko Haram’s campaign to establish its version of Islamic law in Nigeria has left thousands of people dead since 2009.

Africa’s most populous country is also on the brink of recession and desperate for funding. A Nigerian delegation including Finance Minister Kemi Adeosun met with bond investors in London on Tuesday, as the West Africa nation looks to raise debt on international markets for the first time in almost three years.

Nigeria’s “current focus is to start injecting money into the economy through capital projects,” Roberts said. “With the extreme pressure on government finances, they’ve been desperate to find alternative sources of revenue.”

MTN engaged Holder, a partner at law firm Covington & Burling LLP, to challenge the penalty. Holder, the US attorney general from 2009 to 2015, now advises clients on litigation matters.

Sifiso Dabengwa resigned as chief executive officer of MTN in November to take responsibility for the dispute. MTN is searching for a replacement, and has said it will appoint someone by the end of this month.

 

© 2016 Bloomberg

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Sifiso Dabengwa resigned as CEO of MTN in November to take responsibility for the dispute.

Rubbish he resigned to run away from his mess, again no accountability just like the government.

Another smelly rat here. I wonder who got a few million to get the “agreement”? Me a cynic? Yes, this is Africa.

Look no further than an American company having in its employ/partnership some of highest former US government officials.

As much as I agree with sentiment here (terrible and unaccountable management, excessive & unjustified pay-out to Dabengwa, African business lacking transparency and corporate governance) – I think it’s a great opportunity to buy the share:

*My subjective opinions:
1. The fine is finalised and can be finally expensed
2. Accountability/transparency/governance has now been forced to the top of the board’s agenda (from previously holding little weight)
3. The share is priced very cheaply relative to historic norms and future earnings potential (expansive and proven African telecoms footprint)
4. Nigeria has suffered a confluence of problems (Oil, political issues, terrorism, EM/Frontier market capital outflows) so the country equity market has priced in an extremely negative near term future, these supressed prices make MTN even cheaper. The market is pricing in such negativity, any positive news (or even just less negative news) should be richly rewarded in the share price.
5. Yes MTN is a classic African company (with all the inherent problems of doing business in Africa) but remember shareholders are rewarded for this risk but abnormally high equity returns, MTN is well positioned to ride out the storm and they are well positioned to take advantage of the rising consumer demographic in Nigeria – a country with enormous demographic dividend

I think a 3-5 year view will see large returns for the share.

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