MTN: Analysts say timing, penalty could disrupt markets

The ongoing saga between MTN Nigeria and the Central Bank of Nigeria on one hand and the attorney general of the federation (AGF) on the other, is throwing up concerns for the telecoms industry, markets and the economy.

The CBN and the Ministry of Justice, both agents of the Federal Government of Nigeria, have respectively instructed MTN to refund $8.1 billion of remitted and distributed dividends and payment of $2 billion for import duty underpayment of about 10 years.

The analysts, who said government should not condone the company’s serial infractions, however flayed the timing and level of penalty, which according to them would be disruptive to the company’s operations, the telecoms industry, markets and the economy in general.

Specifically, Bismarck Rewane, chief executive officer of Financial Derivatives Company (FDC), in a presentation at the September Lagos Business School (LBS) Breakfast Session, said the $8.1 billion the CBN is asking the company to refund amounts to approximately 80 percent of the total market capitalization of MTN Group, the parent company of MTN Nigeria.

He said the level of the penalty and timing could disrupt the company, industry, economy and the markets, noting that portfolio investors are particularly jittery since the imposition of the penalty and have started dumping stocks.

“The penalty almost killed the MTN Ghana IPO; only 35 percent successful,” he said, pointing out that the actions of both agents of government could amount to cannibalization of an industry dominant player.

Rewane added that MTN is the only company in Nigeria that can and will invest upwards of $1.5 billion on telco capex annually in the next five years.

According to him, the penalty would starve the Nigerian economy of such investments, noting that the country needs 70,000 towers to effectively catch up with 5G technology and digital revolution.

Even banks that are co-victims of the repatriation saga are questioning some of the roles and actions of the authorities.

A banker who spoke to business a.m. said the fall out of this development is that banks need to be careful and circumspect in dealing with documents of capital importation, duties, amongst others.

“On the MTN issue, well everyone just needs to ensure that all approvals are in place.

Check that the documents are in a row.

You don’t want to be a victim,” he said.

“Why is the AGF the one raising issues about tax? Where is the FIRS? When did the AGF assume a fiscal policy regulator role?” he queried, adding that he finds certain actions terrible, especially those that do not consider the long term investor impact on the economy.

Some analysts who spoke to business a.m. however berated the telecoms operator for constantly violating tax laws and other infractions, which according to them could not be traced to other operators in the industry.

“Why must it be MTN all the time,” one queried, saying that MTN needs to critically introspect, overhaul its corporate governance and bring onboard ethical and competent persons to steer its affairs if it must continue be the biggest operator in Nigeria’s telecoms market.

“I think taxes and forex laws were abused.

For many years, MTN Nigeria has been abusing the system and it may have finally caught up with them,” a source familiar with the matter told business a.m.

He said: “MTN keeps denying and denying, but, as they had to eventually settle the SIM card issue, they will need to settle this one too.”

The source said the figure ($8.1 billion) quoted by the CBN may not be correct just as it happened over non-registered SIM cards issue, however, adding that it will definitely be a large amount due and payable by MTN to the federal government.

“I am even concerned that some very high profile people may have authorized these past actions, and with the change of government a lot of dirt is coming out from under the carpet,” the source said.

MTN had entered Nigeria exposing itself to political actors from the beginning relying on heavy lobbying of government officials.

It is well known that both members of the executive and legislative arms of government were given freebies in terms of unlimited phone service, which according to analysts might have allowed them in the past to get away with many infractions.

However, its inability to continue with those freebies is gradually coming to haunt it.

“We need to understand that this is not widespread.

Airtel invested in Nigeria and has not been having issues. Even old Etisalat was not involved in this kind of a mess,” Ndubuisi Ekekwe told business a.m.

“So, some investors after looking at the big picture may conclude that MTN Nigeria needs better leaders. In other words, the problem may not be Nigeria but MTN. But where we have many companies going through this paralysis, then it becomes systemic,” Ekekwe said.

Thomas Elechi, an ICO investor and blockchain expert at LIFTIX Technologies Limited, said MTN is in a mess that needs to be expediently cleaned, as failure to do that in time will result to severe implications.

“If the allegations are true the implication is going to be dire and in two folds.

First, the MTN brand would be dented as a tax defaulter/evader and its stock value seriously impacted.

“Secondly, the financial implication would be hard on MTN since it has not even finished the payment on the SIM deactivation fine, then another $2 billion,” he said.

Elechi suggested that MTN would have to adopt a political solution by bringing in the South African and Nigerian governments in resolving these issues as it is beginning to look like they are under attack.

As of February 2018 MTN has the largest share of the Nigerian telecoms market with 36.39 percent, Airtel 26.10 percent, Globacom 26.03 percent, and 9mobile 11.49 percent.

According to reports, MTN Group shares were already dropping on the Johannesburg Stock Exchange as much as 23 percent to a nine-year low, a day after the Central Bank of Nigeria (CBN) ordered the telecoms firm to repatriate $8.1 billion alleged to have been sent abroad illegally.

Specifically, MTN investors are believed to have lost over $4 billion in value, which is probably more than 50 percent of MTN Nigeria valuation, depending on individual valuation.

Elechi pointed out that situations of such magnitude make it extremely difficult to have that confidence in bringing direct foreign investment into the country in different parts of the economy.

“No company is actually free from this because your transactions since inception can still be audited and fine slammed on you as a company. So foreign investors are now not sure of what to expect,” Elechi said.

He said these issues are very critical and should be nipped early enough before they became national and international headlines.

“What it does is that it devalues our shares in the company,” he added.

Others see the recent fines and penalties coming from the company’s foot-dragging on an earlier agreement for it to list on the Nigerian bourse as a result of the reduced $1.7 billion fine over unregistered SIM card violation.