MTN Nigeria risk puts SA financial sector on tenterhooks
JOHANNESBURG – The SA Reserve Bank (Sarb) yesterday warned that MTN’s continuing woes in Nigeria could rattle the local financial services sector.
Sarb said in its financial stability review that if MTN was forced to pay the Central Bank of Nigeria (CBN) the $8.1bn (R113.29bn) it allegedly repatriated illegally, the group might struggle to pay off its debt, thereby heightening risk to the country's financial system.
“Any potential impact on the South African financial system arising from this event will depend on the eventual resolution of the matters raised and the MTN Group’s ability to continue meeting its debt obligations, including those in the South African banking sector,” Sarb said.
“Given the globally interconnected nature of the South African financial system, this could increase systemic risk.”
The office of the Nigerian attorney-general has also given MTN notice of its intention to recover $2bn of taxes relating to the importation of foreign equipment and payments to foreign suppliers since 2008.
MTN is challenging both matters in court. In August MTN, the continent's largest mobile network provider said its debt increased to R69.8bn in the six months ended June, compared with R57.1bn at the end of last year.
The group said the surge in debt was due to the weaker closing rand and the payment of the final dividend under the previous dividend policy.
MTN has also flagged that it would struggle to repatriate R3.4bn in accumulated dividends and loans from its Iran joint venture due to the US sanctions.
MTN yesterday refused to disclose how much of its near R70bn debt was held by local banks after the Sarb warned that its multibillion-dollar woes in Nigeria posed systemic risks to the financial system.
“At the interim period, the group had debt of R69.8bn. Of this, R68.4bn was at the head office, and this was made up of R31.8bn in rand funding and R36.6bn equivalent in dollar funding,” an MTN spokesperson said.
“Importantly, though, our rand funding includes both rand bond issuances through our domestic medium-term note programme as well as rand bank funding. In the rand bank funding, we have both South African banks as well as international banks contributing to the rand debt.”
Nigerian authorities said yesterday that MTN’s court challenges would be heard next month.
Moody’s Investor Services in September cautioned that MTN’s inability to fully hedge its offshore operational exposures bares it to rand volatility and additional credit risk.
Moody’s has also placed MTN on review for a downgrade to reflect the uncertainty around the potential implications of the CBN and Nigerian attorney-general's announcements on MTN’s credit profile.
Asief Mohamed, chief investment officer at Aeon Investment Management, said it was imperative that MTN sorted out its problems in Nigeria speedily.
“In the unlikely event that MTN is obliged to repatriate the dividends to Nigeria, it may put a strain on the MTN Groups financial position and its ability to service its South African debt,” Mohamed said.
MTN shares declined 2.93 percent on the JSE on Thursday to close at R86.88.