The insistence of 13 local banks to convert Etisalat’s N377 billion debt to equity, despite its plea for refinancing, has raised a lot of uncertainty over the fate of the telecoms company, writes Emma Okonji
Etisalat is currently battling to survive following its indebtedness of N377 billion to some banks. While the telecommunications firm did not deny the indebtedness and has asked for a review of repayment terms, its creditors are insisting on the conversion of the N377 billion to equity. The implication of the position of the banks is that should Etisalat succumb to conversion of the loan to equity, the banks will automatically become shareholders in Etisalat’s business, a situation that stakeholders in telecoms industry fear could hurt the firm’s business.
Worried about the development, the telecoms industry regulatory body, the Nigerian Communications Commission (NCC), had waded into the matter by asking the Central Bank of Nigeria (CBN) to intervene.
The CBN’s prompt intervention had halted the banks bid to take over the telecoms company penultimate week. The apex regulator thereafter invited the banks to a meeting to discuss the modality for repayment of the debt. The seven-year syndicated loan has a dollar component of $235million which the telecoms company sought to convert into naira owing to dollar scarcity. However, the banks had turned down the request and instead urged the parent company to settle the loan.
The position of the banks, despite NCC and CBN intervention, has raised fears and uncertainty among telecoms stakeholders, who fear that it could have dire consequences on the telecoms company’s business.
Already, the Etisalat Group has threatened to pull out of the shareholding arrangement, should the banks have their way, since the group generates only 3.7 per cent of its revenues from the Etisalat Nigerian business, and has questioned the rationale of investing more in the business.
According to the shareholding structure, the UAE Etisalat owns 45 per cent of Etisalat Nigeria, while Abu Dhabi’s Mubadala owns 40 per cent of the company, and the remaining 15 per cent of the telecoms company’s shares is owned by Nigerian investors.
The Indebtedness Saga
Etisalat had in 2013, approached the banks for a loan of $1.2 billion for network upgrade and expansion. The seven-year syndicated loan was sourced in both dollar and naira.
But penultimate week, the banks had threatened to take over Etisalat’s business in Nigeria, having missed a payment, but for the quick intervention of the CBN and the NCC.
The economic downturn, which resulted in drastic reduction in customers’ deposits, the banks’ exposure to sectors that are having challenges, as well as the Treasury Single Account policy of the federal government had taken a huge toll on banks’ income. This, industry watchers said, might have prompted the banks’ to intensify their loan recovery drive.
Speaking on the company’s indebtedness to the banks and their plan to take over the telecoms firm, Vice President, Regulatory Affairs at Etisalat, Mr. Ibrahim Dikko, had 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.”
Dikko explained that Etisalat had invested over $2 billion in the telecoms business, which was obtained from its parent company, Mubadala, and its shareholders in UAE and Nigeria, 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 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 discussions 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: GTBank, Zenith Bank, First Bank, UBA, Fidelity Bank, Access Bank, EcoBank, FCMB, Stanbic IBTC Bank and Union Bank.
Etisalat explained that it had commenced refinancing of the loan since 2014 but failed to continue payment in 2017 for a payment plan that is due in 2020, as a result of devaluation of naira and scarcity of dollar.
Dikko said Etisalat had opened fresh negotiations with the banks, noting that part of the new payment model is the request by Etisalat that it converts the dollar component of the loan to naira. But the banks do not want that option, as they rather prefer that the loan be converted to equity to enable them become shareholders of the telecoms company.
Despite the intervention by the NCC and the CBN, the banks have opposed the proposal by Etisalat Nigeria to convert part of the $1.2 billion loan from dollars to naira. They rather want the Abu Dhabi telecoms group, Etisalat and its other shareholders to recapitalise it instead, according to a source from among the banks.
It was gathered that most of the 13 lenders involved in the Etisalat Nigeria loan had raised dollars abroad to participate, and they are afraid that further naira weakness would see them receive fewer dollars, should they accept Etisalat’s offer to convert part of the loan from dollar to naira.
“The naira has lost half of its value since the loan, which matures in 2020, was made. Interest is due monthly and the next principal payment is due in May,” a source said.
All the 13 local banks do not have equal shares in the loan, as Etisalat is owing Fidelity Bank Plc about N17.5 billion ($56 million), it is owing GTBank N42 billion and Access Bank N40 billion, while its exposure to other banks was yet to be disclosed.
NCC, CBN intervention
In the wake of crisis, the CBN and NCC have tried to intervene through series of meetings.
First, the NCC met with the CBN in order to find a lasting solution to the situation of indebtedness by Etisalat.
The meeting was attended by the Executive Vice Chairman of NCC, Prof. Umar Danbatta, the CBN Governor, Mr. Godwin Emefiele, and his team. At that meeting, a decision was reached to intervene in the matter.
The meeting, which held at the CBN’s 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 another meeting, towards finding an amicable resolution.
Director, Public Affairs at NCC, Mr. Tony Ojobo, who confirmed the meeting, said the second meeting was a follow -up to the first meeting.
According to him, at the second meeting, CBN ordered the 13 banks to stop the planned takeover move and rescheduled another meeting for March 16, which was later postponed to this week, with no definite date yet.
According to a statement issued by Ojobo, shortly after the second meeting, “the meeting succeeded in halting the attempt by Etisalat’s creditors at bringing it under any form of take over. Receivership was completely taken off the table in a meeting that was very productive and constructive.”
The second 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.
Industry sources have continued to express worries about the ugly consequences, especially the wrong signals that the Etisalat’s indebtedness to the 13 local banks may send to potential investors in the telecoms industry. Stakeholders have however hailed the timely intervention of NCC and the CBN. One of the stakeholders told THISDAY that the banks would only succeed to grounding the operations of Etisalat if allowed to take over the company. The stakeholder cited the case of some telecoms operators that have gone under in the past and called on government to rise to the responsibility to save Etisalat from total collapse.
In order to address the situation, the Association of Licensed Telecoms Operators of Nigeria (ALTON), has requested for priority allocation of foreign exchange to telecommunications industry by the CBN. Chairman of ALTON, Gbenga Adebayo has drawn the attention of Danbatta to the challenges of its members in purchasing foreign exchange (FX) from interbank market to fulfill 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.