Mount­ing off-shore woes hit MTN

Its stock has al­ready plunged 44.72 per­cent in the past six months, valu­ing the com­pany at R131.90bn


MO­BILE op­er­a­tor MTN sank to its low­est level since 2006, as the group bat­tled to shrug off mount­ing off­shore woes.

The group, whose stock has al­ready plunged 44.72 per­cent in the past six months, widened the losses fur­ther yes­ter­day, fall­ing 2.78 per­cent to R70 to value the com­pany at R131.90 bil­lion.

This as in­ter­na­tional rat­ings agency Moody’s warned that MTN’s in­abil­ity to fully hedge its off­shore op­er­a­tional ex­po­sures bares it to rand volatil­ity and ad­di­tional credit risk.

The rat­ing agency said that the im­pact of cur­rency weak­ness on lever­age was more pro­nounced in 2016, when Nige­ria moved to a float­ing ex­change rate, re­sult­ing in a 57 per­cent de­pre­ci­a­tion of the naira against the dol­lar.

“MTN also has high dol­lar ex­po­sure in the form of dol­lar cap­i­tal costs and dol­lar debt obli­ga­tions,” Moody’s se­nior an­a­lyst Dion Bate wrote.

“Be­cause MTN is not able to hedge lo­cal African cur­ren­cies, its rev­enue, in­put costs and debt are all ex­posed to cur­rency move­ments,” Bate added.

The group, which has a pres­ence in 21 African coun­tries and Iran, said last month that its net debt in­creased to R69.8bn in the six months ended June, com­pared to R57.1bn at the end of last year.

MTN has al­ready halved its value in the year to date, fall­ing 48.76 per­cent dur­ing the pe­riod.

This week alone MTN lost al­most a third of its value, fall­ing more than 30 per­cent, af­ter Nige­rian au­thor­i­ties ac­cused the com­pany of vi­o­lat­ing for­eign ex­change reg­u­la­tions by repa­tri­at­ing $8.1bn (R122.43bn) worth of div­i­dends be­tween 2007 and 2015.

Last month MTN said that the surge in debt was due to the weaker clos­ing rand and the pay­ment of the fi­nal div­i­dend un­der the pre­vi­ous div­i­dend pol­icy.

MTN’s forex linked losses amounted to R600 mil­lion in the pe­riod un­der re­view.

MTN has also said that it would strug­gle to repa­tri­ate R3.4bn in ac­cu­mu­lated div­i­dends and loans from its Iran joint ven­ture due to the US sanc­tions.

Last week, Moody’s placed MTN on re­view for down­grade to re­flect the uncertainty around the po­ten­tial im­pli­ca­tions of the re­cent Cen­tral Bank of Nige­ria and Nige­rian At­tor­ney-Gen­eral’s an­nounce­ments on MTN’s credit pro­file.

Yes­ter­day, the agency said 47 per­cent of the MTN debt was in dol­lars, while 19 per­cent was in other African cur­ren­cies.

Ofentse Dazela, a direc­tor for pric­ing re­search at Africa Anal­y­sis, said the Moody’s re­port raised some con­cerns for MTN.

“The im­pli­ca­tion is that the group’s ser­vice and to­tal rev­enue could be neg­a­tively af­fected by the fluc­tu­at­ing ex­change rates.

“The group will likely con­sider new ap­proaches such as mit­i­gat­ing debt ex­po­sure by hedg­ing against ex­change rate fluc­tu­a­tions and fix­ing con­ver­sions at a favourable rate,” Dazela said.

Moody’s said that a stronger rand would in­crease the dol­lar op­er­at­ing costs for com­pa­nies like Sa­sol, be­cause dol­lar costs would in­crease against rev­enue lead­ing to lower mar­gins and prof­itabil­ity.

“MTN and Sa­sol have for­eign earn­ings and as­sets that partly hedge out ad­verse rand cur­rency weak­ness. Th­ese earn­ings may be sufficient to pay for­eign debt owed,” said Asief Mo­hamed, chief in­vest­ment of­fi­cer at Aeon In­vest­ment.

“The bulk of the off­shore cap­i­tal ex­pen­di­ture has been spent for Sa­sol.

“The Sa­sol Lake Charles in­vest­ment is ex­pected to gen­er­ate cash flows to pay for­eign debt over the next few years.”

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