Iranian sanctions put MTN’s repatriation of cash at risk

MTN scrambled to extract about €60m (R898m) from its Iranian business in the six weeks before US President Donald Trump’s announcement that he would withdraw from the multinational nuclear deal with Iran.

The mobile operator probably has a window period of several months to repatriate as much of its Iranian cash stockpile as possible before moving money out of the Middle Eastern country becomes more difficult.

“The initial guidance from the US yesterday indicated that there would be a 90-day winddown period before the US would reimpose sanctions targeting Iran,” said an MTN spokesman, asking not to be named. The group’s share price shares fell 0.6% to R124.22 on Wednesday. It has about €200m of legacy cash in Iran.

“MTN Group remains committed to our investment in Irancell and to repatriating the balance of legacy cash in Iran, whilst remaining compliant with appropriate legislation,” the company said in a stockexchange filing. It said it had repatriated about €88m from MTN Irancell so far in 2018.

Asset manager Vestact said in a note to clients that one theory in the market was that by pulling out of the deal “Trump is using ‘the art of the deal’ to try to get a better negotiating position for a new deal”.

Indications were that it could take at least six months for the new sanctions to be implemented, Vestact said.

“It will be interesting to see how things unfold though because the US is now at odds with allies across ‘the pond’ … For us in SA, we feel the ripple effect on the oil price and through MTN,” Vestact said.

Mergence Investment Managers portfolio manager Peter Takaendesa said last week it would be difficult to quantify the net effect on MTN of fresh Iranian sanctions.

Sanctions against Iran could lift the oil price, which would be a boon for MTN’s business in Nigeria, which is its largest market, and in Ghana.

Excelsia Capital analyst Mark Narramore said if Irancell’s dividends were trapped in that country it could weigh on MTN’s dividends at a group level, though the dividend would be partly protected by the improving performance in Nigeria.

MTN chief financial officer Ralph Mupita said last week a “worst-case scenario” for the company would be for MTN’s Iranian business to be shut off from European and from US banks. If European countries such as Germany and France remained committed to Iran’s nuclear deal, MTN would still be able to repatriate Iranian funds by exchanging them for euros and then rands.

Mupita said repatriating and getting access to hard currency in Iran had proven challenging, particularly since the start of the protests at the end of 2017 and the beginning of 2018, considering the pressure that was being imposed on Europe by the US for a revised deal, or “at least” to pull out of the deal.

“But I guess the worst-case scenario would be that, with the US pulling out and with the return of sanctions, we would probably go back to where we were before the JCPOA [joint comprehensive plan of action] deal.”

However, Mupita said European countries appeared to be committed to the nuclear deal.

TRUMP IS USING ‘THE ART OF THE DEAL’ TO TRY TO GET A BETTER NEGOTIATING POSITION