MTN has high dollar exposure in the form of dollar capital costs and dollar debt obligations, according to Moody’s senior analyst. Photo: Reuters
MTN has high dollar exposure in the form of dollar capital costs and dollar debt obligations, according to Moody’s senior analyst. Photo: Reuters

MTN hit by mounting offshore woes

By Kabelo Khumalo Time of article published Sep 13, 2018

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JOHANNESBURG – Mobile operator MTN sank to its lowest level since 2006, as the group battled to shrug off mounting offshore woes.

The group, whose stock has already plunged 44.72 percent in the past six months, widened the losses further yesterday, falling 2.78 percent to R70 to value the company at R131.90 billion.

This as international ratings agency Moody’s warned that MTN’s inability to fully hedge its offshore operational exposures bares it to rand volatility and additional credit risk.

The rating agency said that the impact of currency weakness on leverage was more pronounced in 2016, when Nigeria moved to a floating exchange rate, resulting in a 57 percent depreciation of the naira against the dollar.

“MTN also has high dollar exposure in the form of dollar capital costs and dollar debt obligations," Moody’s senior analyst Dion Bate wrote. 

"Because MTN is not able to hedge local African currencies, its revenue, input costs and debt are all exposed to currency movements,” Bate added.

The group, which has a presence in 21 African countries and Iran, said last month that its net debt increased to R69.8bn in the six months ended June, compared to R57.1bn at the end of last year.

MTN has already halved its value in the year to date, falling 48.76 percent during the period.

This week alone MTN lost almost a third of its value, falling more than 30 percent, after Nigerian authorities accused the company of violating foreign exchange regulations by repatriating $8.1bn (R122.43bn) worth of dividends between 2007 and 2015.

Last month MTN said that the surge in debt was due to the weaker closing rand and the payment of the final dividend under the previous dividend policy. 

MTN’s forex linked losses amounted to R600 million in the period under review. 

MTN has also said that it would struggle to repatriate R3.4bn in accumulated dividends and loans from its Iran joint venture due to the US sanctions. 

Last week, Moody’s placed MTN on review for downgrade to reflect the uncertainty around the potential implications of the recent Central Bank of Nigeria and Nigerian Attorney-General's announcements on MTN’s credit profile.

Yesterday, the agency said 47 percent of the MTN debt was in dollars, while 19 percent was in other African currencies.

Ofentse Dazela, a director for pricing research at Africa Analysis, said the Moody’s report raised some concerns for MTN.

“The implication is that the group’s service and total revenue could be negatively affected by the fluctuating exchange rates. 

"The group will likely consider new approaches such as mitigating debt exposure by hedging against exchange rate fluctuations and fixing conversions at a favourable rate,” Dazela said.

Moody’s said that a stronger rand would increase the dollar operating costs for companies like Sasol, because dollar costs would increase against revenue leading to lower margins and profitability.

“MTN and Sasol have foreign earnings and assets that partly hedge out adverse rand currency weakness. These earnings may be sufficient to pay foreign debt owed,” said Asief Mohamed, chief investment officer at Aeon Investment.

“The bulk of the offshore capital expenditure has been spent for Sasol. 

"The Sasol Lake Charles investment is expected to generate cash flows to pay foreign debt over the next few years.”

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