Trump’s Iran sanctions keep MTN’s R3.4bn out of reach

Mobile operator MTN’s share price registered its biggest decline in more than a year after reporting that R3.4bn of its cash may remain trapped in Iran for at least three years, following renewed US sanctions against the Middle Eastern nation.

Finance chief Ralph Mupita said the group would keep an eye on the Iranian central bank’s newly relaxed foreign exchange rules in the hope it would be able to move funds, but that it was not expecting to do so in the medium term.

Shares in MTN closed 8.1% lower at R104.85 on Wednesday, trading just above its eight-year low reached in July, according to Bloomberg data.

The R3.4bn trapped in Iran dwarfs MTN’s Iranian earnings before interest, tax, depreciation and amortisation of R2.6bn in the period.

For the time being at least, MTN’s 49%-held Iranian business will be on its own from a funding perspective.

“As we don’t expect any capital coming out now, we’re not going to be putting any capital into that business,” Mupita said. “That business will self-generate and self-fund its own growth.”

While the Iranian business had performed “very resiliently”, Mupita said “the next couple of months will be pretty challenging as they respond to these new sanctions”.

In May, Fitch’s BMI Research downgraded its Iranian real GDP growth forecast for 2018 to 3.1%, from 4.3%. It expected the economy to grow at just 0.8% in 2019, from 4.5% previously.

MTN’s otherwise strong operational performance in the six months to June had been “let down” by risks to its Iranian business, said Alastair Jones, a UK-based analyst at New Street Research.

The group reported a 17% jump in constant-currency earnings in the six months to end-June, with margins rising 2.2 percentage points and service revenue growth beating its own guidance.

The strong growth was largely thanks to its businesses in Nigeria, its biggest operation by revenue, and Ghana.

Other markets in the Middle East also proved difficult, however. The group has written down the value of its operation in war-torn Yemen by R149m, and is applying “hyperinflation accounting” to its nearby Syrian business, which is also in the midst of a civil war, as is Afghanistan. Revenues in local currencies rose in Iran and Afghanistan in the first half, but declined in Syria and Yemen.

Meanwhile, in Dubai, MTN had signed its biggest wholesale deal to date, CEO Rob Shuter said. MTN set up an MTN GlobalConnect wholesale unit in the city earlier in 2018 and recently signed a deal to provide “a good chunk of capacity to Facebook”.

The social media giant will rent MTN’s infrastructure – including submarine cables, satellite services and terrestrial fibre cables.

MTN’s other wholesale win, whereby Cell C has agreed to roam on its network, comes into effect in the second half of 2018.

Shuter said that after turning around the consumer postpaid business in SA, the last remaining drag on MTN’s home market was the enterprise business. It had appointed a new team there and expected a better second half.

MTN lost its contract with Transnet to Vodacom in early 2018, but is fighting that deal in the courts on the premise that it was unfairly disqualified from the tender process.

The group’s net debt rose to R69.8bn at the end of June, from R57.1bn six months earlier, though Shuter said debt would be reined in through the second half, thanks to the sale of the business in Cyprus and public listings of the Nigerian and Ghanaian units.