N377bn Indebtedness: Succour for Etisalat
Concerted efforts were made by telecoms industry regulator, Nigerian Communication Commission, and the Central Bank of Nigeria last week to save telecoms giant, Etisalat from its creditors’ sledgehammer, writes Emma Okonji
Telecommunications, which is a key component of Information and Communications Technology (ICT), is currently driving economies globally, owing to its huge potentials.
But one of the telecoms operators in Nigeria, Etisalat precisely, last week, came under serious threat by its creditors who were moved to take over the operations of the company for defaulting in the refinancing of its loan obtained from 13 local banks. The move was however halted by a joint action of the Central Bank of Nigeria (CBN), and the Nigerian Communications Commission (NCC), who intervened in the matter.
The move to halt the intended takeover plan was attributed to the importance of telecommunications in developing the Nigerian economy.
In Nigeria, government has come to realise the importance of ICT and agriculture in growing her economy, following the sharp fall in the prices of crude oil at the global market.
The need for government to begin to tilt towards ICT and agriculture was motivated by the strong desire to diversify the Nigerian economy, following the dwindling situation of oil, which had hitherto remained the mainstay of the Nigerian economy.
Citing current statistics in telecoms contribution to GDP, as released by the National Bureau of Statistics (NBS) in June last year, the Executive Vice Chairman of NCC, Prof. Umar Garba Danbatta, said telecoms contribution to Gross Domestic Product (GDP), moved from $18 billion in private sector investments, including Foreign Direct Investment (FDI) in 2009, to $30 billion in 2014, to $32 billion in July 2015, and currently to N1.58 trillion as at June 2016, which represents an increase of 1.0 per cent, relative to the first quarter in 2016.
Danbatta quoted the National Bureau of Statistics, as saying “This is the largest contribution to GDP made from the telecoms sector in the rebased period, which emphasises that growth in telecommunications has remained robust when compared to total GDP.”
In spite of telecoms’ increased contribution to Nigeria’s GDP, one thing that is obvious, is that telecommunications business is capital intensive and needs a lot of capital investments. In order to remain in business and get the right capital for investment, telecoms operators across boards have resorted to obtaining loans from financial institutions, both local and foreign.
In a bid to meet up with its financial obligation for network upgrade and expansion, Etisalat, in 2013, approached a consortium of 13 local banks and obtained a loan of $1.2 billion to invest into its telecoms business, under a stipulated agreement of refinancing the loan with interest on a quarterly basis. But unfortunately for Etisalat, the devaluation of naira, coupled with the scarcity of dollars, made it extremely difficult to continue repayment of the loan, which it had already started, since part of the repayment was done in dollar, based on the agreement reached when the loan deal was concluded.
Worried about the indebtedness of the telecoms company to the 13 banks, the creditors threatened to take over the management of Etisalat Nigeria, until they recoup their money.
Succour however came the way of Etisalat on Friday, when the CBN and the NCC meet with Etisalat and its creditors, and asked the creditors to stall action on the planned takeover.
The Issue
Last week, there was a trending news about the planned takeover of Etisalat’s business in Nigeria by its creditors that were made up of 13 local banks. The reason for the planned takeover was attributed to the inability of Etisalat to continue repayment of the $1.2 billion loan it took from the banks in 2013 for network upgrade and expansion.
Having accepted its indebtedness to the banks, Etisalat, however, said that the company was still negotiating with its creditors on new modalities to refinance the $1.2 billion loan.
Vice President, Regulatory Affairs at Etisalat, Mr. Ibrahim Dikko, assured Etisalat’s subscribers that the issue would be resolved, despite pressure from the creditors to take over the operations of the telecoms company.
According to him, “yes we are indebted, but we have commenced payment, and we only stopped the flow of repayment few months ago as a result of devaluation of the naira and scarcity of dollar.”
According to Dikko, Etisalat had invested over $2 billion in the telecoms business, which was obtained from its parent company, Mubadala, and its shareholders, but it needed additional money to expand its business and provide value added services to its growing customers, hence it approached a consortium of 13 local banks to raise additional $1.2 billon as loan. In refinancing the loan, Etisalat was meant to pay certain percentage of the loan with interest on a quarterly basis, and it has been meeting up with that obligation until recently when it started defaulting, due to devaluation of naira, dollar scarcity, coupled with the economic recession, Dikko said.
He, however, said Etisalat was still in full control of its operations and has commenced fresh discussion with the banks to negotiate a new mode of refinancing the loan.
The situation is not affecting our service delivery and we will continue to provide quality services to our customers, Dikko said.
Some of the banks involved in the loan include: GT Bank, Zenith Bank, First Bank, UBA, Fidelity Bank, Access Bank, EcoBank, FCMB, Stanbic IBTC Bank, and Union Bank.
NCCCBN
Worried about the ugly consequences, especially the wrong signals that the Etisalat’s indebtedness of N377 billion to 13 local banks may send to potential investors in the telecoms industry, the Nigerian Communications Commission (NCC), the telecoms industry regulator, moved to address the situation.
NCC, last Thursday, brokered a meeting in Abuja between it and the Central Bank of Nigeria (CBN) in order to find a lasting solution to the situation of indebtedness by Etisalat.
The meeting was attended by the ExecutiveVice Chairman of the Nigerian Communications Commission (NCC), Prof. Umar Danbatta, the CBN Governor, Mr. Godwin Emefiele, and his team, where a decision was reached to intervene in the loan issue between Etisalat Nigeria and a consortium of commercial banks.
The meeting, which held at the Central Bank headquarters in Abuja, was convened by the financial regulator at the instance of NCC, to further deliberate on how best to stave off the attempt by the banks to take over Etisalat. At the end of the meeting, CBN invited Etisalat’s management and the banks to a meeting on Friday, towards finding an amicable resolution.
Director, Public Affairs at NCC, Mr. Tony Ojobo, who confirmed the meeting, said NCC was worried about the fate of the over 20 million Etisalat subscribers and the wrong signals this may send to potential investors in the telecoms industry, hence it brokered the meeting.
Regulators Stops Takeover Bid
As a follow-up to the meeting held on Thursday, the CBN and the NCC, on Friday, held another meeting, where it invited the management of Etisalat and its creditors for further deliberations. At that meeting, CBN ordered the 13 banks to stop the planned takeover move and rescheduled another meeting for March 16.
The halt on the planned takeover was the outcome of the meeting held in Lagos, between the CBN, the NCC, the telecoms company and its creditors. According to a statement issued by the Director, Public Affairs at NCC, Mr. Tony Ojobo, the Friday’s meeting succeeded in halting the attempt by Etisalat’s creditors at bringing it under any form of takeover. Receivership was completely taken off the table in a meeting that was very productive and constructive.
The meeting, which held at the CBN office in Lagos, had the consortium of banks being owed and Etisalat in attendance. The banks and the mobile network operator agreed to concrete actions that will bring all parties closest to a resolution. According to the statement, CBN and NCC were able to secure for Etisalat the necessary oxygen to enable it continue to meet urgent operational expenses.
Industry Position
ICT stakeholders, who are equally worried about the fate of Etisalat, have called on the banks to exercise some patience, since the telecoms company has accepted its indebtedness and it is already making fresh plans to repay the loan.
President of National Association of Telecoms Subscribers (NATCOMS), Chief Deolu Ogunbanjo, who commended the recent move by NCC and the CBN to address the issue, said it was a timely intervention, while pleading with the banks to be calm and allow NCC, which is the telecoms regulator and the CBN, which is the regulator of banks and all financial institutions, to handle the matter.
Speaking on the implications of possible takeover, Ogunbanjo said that could spell doom for Etisalat, because the banks do not have the technical expertise to run a telecoms company, even for one month. He cited cases of some telecoms companies that have gone under as a result of their inability to raise the required huge capital investment for network expansion. The telecoms companies were doing well and their subscriber growth was on the increase, and they needed money for network expansion and upgrade, but found none, a situation that led to their collapse, even after the idea of merger and acquisition were embraced, Ogunbanjo said.
Also worried about the situation, the Association of Licensed Telecoms Operators of Nigeria (ALTON), has requested for priority allocation of foreign exchange to telecommunications industry by the Central Bank of Nigeria.
Chairman of ALTON, Gbenga Adebayo, who issued a statement yesterday on behalf of its members, drew the attention of Danbatta to the challenges of its members in purchasing Foreign Exchange (FX) from interbank market to fulfil obligations to equipment suppliers and foreign vendors.“This situation is adversely impacting our members’ network operations and we would appreciate the Commission’s urgent assistance. The prevailing scarcity of FX has occasioned a situation where the banks are unable to obtain FX for an upward period of six months despite the submission of pre-requisite documentation for such transactions,”Adebayo said.
ALTON respectfully seeks the indulgence of the EVC to provide background information resulting to the subsisting regime of exempting telecommunications industry from the Central Bank of Nigeria (CBN) intervention window.
Some subscribers, who spoke on the issue, however, expressed shock that a telecoms giants like Etisalat could be trapped in the bed of indebtedness, despite its over 20 million subscribers from where the company is generating huge sums of money from voice and data services.
Bright Outlook Despite Loan Troubles in Nigeria
Etisalat Group, the pride of the United Arab Emirates (UAE), saw profit and revenue rise in 2016, as its Group CEO Saleh Al Abdooli, hailed the company’s ability to mitigate the pressures arising from the global economic slowdown.
In its annual earnings statement, the company revealed consolidated revenue hit AED52.4 billion ($14.3 billion) in 2016, up from AED51.7 billion in 2015. In the UAE, its home market, revenue increased 5 per cent to AED30.3 billion.
Profit in 2016 was boosted by a federal royalty payment and amounted to AED8.4 billion compared with AED8.27 billion in 2015. Notably, Etisalat’s subscriber base dropped to 162 million in 2016 from 167 million at the end of 2015.