The for­tunes of Eti­salat Nige­ria af­ter it de­faulted on re­pay­ment of a $1.2bn loan raise ques­tions on how a sup­pos­edly thriv­ing com­pany could have failed so spec­tac­u­larly

The Africa Report - - CONTENTS -

The cu­ri­ous fall of Eti­salat Nige­ria

On the morn­ing of 20 June the ru­mours were fi­nally con­firmed by a let­ter from the Eti­salat Group of the United Arab Emi­rates, de­liv­ered to the Abu Dhabi Se­cu­ri­ties and Ex­change Com­mis­sion. The let­ter, signed by Chief fi­nan­cial of­fi­cer Serkan Okan­dan, was in the usual dry, tech­no­cratic style of fi­nan­cial re­port­ing: ‘Fur­ther to our an­nounce­ment dated 12 Fe­bru­ary, 2017, Emi­rates Telecom­mu­ni­ca­tions Group Com­pany PJSC, “Eti­salat Group” would like to in­form you […]’. But it con­tained an ex­plo­sive an­nounce­ment. A con­sor­tium of 13 Nige­rian banks was tak­ing over the Eti­salat Group’s lo­cal af­fil­i­ate in Nige­ria, Emerg­ing Mar­kets Telecom­mu­ni­ca­tions Ser­vices (EMTS), which is known as Eti­salat Nige­ria, af­ter it de­faulted on a $1.2bn loan. It was the end of an ex­tra­or­di­nary cor­po­rate jour­ney which had be­gun a decade ear­lier when, in Jan­uary 2007, the govern­ment of Nige­ria awarded the Uni­fied Ac­cess Ser­vice Li­cence to the Mubadala Devel­op­ment Com­pany of Abu Dhabi (which owns Eti­salat). Nige­ria dereg­u­lated its tele­coms in­dus­try in 2001.


And it leaves more ques­tions than it does an­swers. Many of them cen­tre around the management of Eti­salat Nige­ria’s chair­man, the in­flu­en­tial Nige­rian busi­ness­man Ha­keem Belo-os­agie. A for­mer chair­man of the United Bank for Africa, through his hold­ing com­pa­nies, My­a­cynth and Pre­mium Telecom­mu­ni­ca­tions Hold­ings, Belo-os­agie con­trolled a stake in Eti­salat Nige­ria, along­side the Gulf hold­ing com­pany. The pri­mary ques­tion is: how come Eti­salat Nige­ria was strug­gling? The com­pany was be­lieved to have some of the high­est mar­gins in the in­dus­try, and had just two years be­fore made $400m by sell­ing tow­ers to a lo­cal pri­vate eq­uity com­pany. Cer­tainly, no one saw this com­ing, de­spite the re­cent eco­nomic pinch caused by the oil price drop. Nige­rian banks have been forced to re­struc­ture their loans to busi­nesses across var­i­ous sec­tors, par­tic­u­larly en­ergy, to fore­stall a sharper rise in the rate of bad loans. But lit­tle thought was given to the tele­coms sec­tor as the op­er­a­tors were be­lieved to be ca­pa­ble of weath­er­ing the down­turn. This was why the banks did not make any pro­vi­sion for the loan to Eti­salat says Ugo Obi-chukwu, an ac­coun­tant and fi­nan­cial an­a­lyst and founder of Naira­met­rics, a lead­ing busi­ness news blog in Nige­ria: no one an­tic­i­pated that Eti­salat would be un­able to meet its obli­ga­tion. “Typ­i­cally banks will take pro­vi­sions when they sus­pect that a bor­rower is go­ing to de­fault, but they didn’t take any pro­vi­sion [on Eti­salat], none at all. So it was quite sur­pris­ing”, says Obi-chukwu. Iron­i­cally, when Eti­salat Nige­ria launched in 2008, an­a­lysts were queu­ing up to pre­dict its down­fall. Its com­peti­tors – the likes of MTN, Air­tel and Globa­com – had been op­er­at­ing for a num­ber of years be­fore it came onto the scene. The mar­ket had ef­fec­tively co­a­lesced around these three op­er­a­tors, who had built out vast net­works across the coun­try and de­ployed var­i­ous strate­gies to ac­quire and main­tain a share of the mar­ket. It was thought that Eti­salat had lit­tle chance of be­com­ing a ma­jor player in the in­dus­try. But the ex­perts turned out to be wrong. Eti­salat per­formed re­mark­ably well fol­low­ing its launch in Oc­to­ber 2008, and went on to reach the mile­stone of 1 mil­lion sub­scribers just eight months later. Fu­elled by the ex­per­tise of its for­eign par­ent and the savvy of its chair­man, Eti­salat grew at rocket speed and soon be­came recog­nised as the op­er­a­tor with the best qual­ity of ser­vice in Nige­ria. Belo-os­agie had re­cruited a stel­lar team led by Steven Evans, a for­mer CEO of the UK’S BT Mo­bile.


Over the fol­low­ing years, as rival smaller op­er­a­tors folded Eti­salat snapped up their sub­scribers. By 2011, the com­pany had 12 mil­lion sub­scribers, ce­ment­ing its sta­tus as the fourth largest op­er­a­tor.

As the land­scape con­tin­ued to shift un­der tech­no­log­i­cal and op­er­a­tional pres­sures, Eti­salat ap­proached a con­sor­tium of banks in 2013 to grant it the $1.2bn loan to en­able it re­fi­nance an ex­ist­ing obli­ga­tion worth $650 mil­lion and fund an up­grade of its net­work. The loan was granted and the com­pany car­ried on with its busi­ness hav­ing be­lieved to have be­come prof­itable by then. But as the high cost of op­er­a­tions con­tin­ued to ex­ert pres­sure on their op­er­a­tions, Nige­rian tele­coms op­er­a­tors moved to cut costs and be­gan sell­ing their tow­ers, which ac­counted for a high por­tion of their op­er­at­ing costs. Eti­salat sold 2,691 tow­ers to IHS Tow­ers, a mo­bile telecom­mu­ni­ca­tions in­fra­struc­ture com­pany, in 2015. Reuters es­ti­mated the deal to have been worth $400 mil­lion, which is equiv­a­lent to what Mubadala had paid the Nige­rian govern­ment for the li­cence. Then came the eco­nomic slow­down in Nige­ria due to the col­lapse of oil prices in late 2014. The naira came un­der in­tense pres­sure as the coun­try’s sup­ply of for­eign ex­change de­clined sharply; this put a squeeze on the bank­ing sec­tor and led to a rise in the rate of bad loans. In re­sponse to this pres­sure on the cur­rency, the Cen­tral Bank of Nige­ria de­val­ued the naira by around 50% in June 2016. This hit Eti­salat’s loan obli­ga­tion as it ef­fec­tively meant a sig­nif­i­cant in­crease in the naira value of the loan. De­spite at­tempted res­o­lu­tions with the bank, ul­ti­mately the pace of re­pay­ments out­stripped Eti­salat Nige­ria’s abil­ity to pay – and the banks have ended up hold­ing the com­pany. Her­bert Wigwe, CEO of Ac­cess Bank plc, one of the 13 lenders, as­serts that the banks have no in­ten­tion of run­ning the com­pany, but sim­ply want to get back the funds they had lent, which were sourced from de­pos­i­tors’ funds. “We don’t want to be eq­uity hold­ers; we would rather be paid out,” Wigwe says.


Given that the banks have as­sumed con­trol of the com­pany, the log­i­cal con­clu­sion that would lead to the re­cov­ery of their funds would be to sell it to a buyer who would be in­ter­ested in tak­ing on the debt-laden as­set. Wigwe im­plies that this is the likely course to be pur­sued by the banks, as the com­pany re­mains an at­trac­tive propo­si­tion with over 20 mil­lion sub­scribers. “Would we be able to find a buyer for that kind of as­set? The an­swer is ab­so­lutely yes,” he says. Nev­er­the­less, the Cen­tral Bank of Nige­ria has asked the banks to main­tain the sta­tus quo and seek ap­proval from it be­fore tak­ing any fur­ther ac­tion on the mat­ter. This move is be­lieved to stem from the view of the tele­com reg­u­la­tor that the com­pany is sys­tem­i­cally im­por­tant to the na­tional econ­omy. Find­ing a new buyer for Eti­salat Nige­ria will take a while, be­lieves Obi-chukwu, be­cause who­ever now buys the as­set will want an­swers to those ques­tions about how the com­pany went un­der. Some an­a­lysts be­lieve Eti­salat, which was thought to have the high­est av­er­age rev­enue per user (ARPU) in the in­dus­try, should not have had such prob­lems, im­ply­ing the pos­si­bil­ity of more sign­f­i­cant gov­er­nance is­sues. Hence the ball is now in the court of the banks, the reg­u­la­tors and prospec­tive own­ers to over­see the rise of a new op­er­a­tor from the ashes of the dead part­ner­ship. As for Mubadala and Belo-os­agie, it seems their ex­tra­or­di­nary jour­ney has come to a sorry end. Charles Idem in La­gos

Eti­salat staff in 2013 – bored, but bliss­fully un­aware that the com­pany had taken out a loan that would cause it to self-de­struct

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