As NCC Moves to Salvage Etisalat

Following the threat posed by its lenders, the Nigerian Communications Commission renewed efforts last week to save Etisalat from going under, writes Emma Okonji

As the banks continue to close in on Etisalat with series of threats to take over its telecoms business, following its inability to pay the balance of the $1.2 billion loan it took from a consortium of 13 local banks in 2013 for network upgrade and expansion, the Nigerian Communications Commission (NCC), the telecoms industry regulator, last week, issued a fresh letter to Access Bank, the leader of the consortium, informing them of what could befall Etisalat, if they are allowed to make do their threats.

The fresh letter from NCC, which was copied other members of the consortium, was a follow up of series of meetings between the NCC, the Central Bank of Nigeria (CBN) and the banks, at the instance of the NCC.

NCC’s fresh letter
Worried about the implications of the planned takeover of Etisalat’s business by its creditors, the NCC had written the banks, explaining the adverse effect of the planned action. The letter, which was signed by the Executive Vice Chairman of NCC, Prof. Umar Garba Danbatta, was dated June 21, 2017.

A copy of the letter, which was made available to THISDAY, was also sent to the Governor of CBN, and the managing directors of GTBank and Zenith Bank, who are part of the consortium.

Part of the letter read: “The Commission, as a responsible regulator, is concerned about the likely implications of the takeover for subscribers on the Etisalat network in particular and the telecoms industry at large.”
Citing the Commission’s Act 2003, Danbatta insisted that Etisalat’s licence cannot be assigned or sub licenced or transferred to any other party, unless the prior written approval of the Commission has been granted.

Danbatta therefore, directed Access Bank to convene a meeting between the Commission and the management of the 13 banks and revert to NCC as soon as the date for the meeting was fixed.

NCC’s previous intervention

The NCC and the CBN had in the past, held several meetings with Etisalat and its creditors to stop the banks from taking over the telecoms company.
The CBN and the NCC tried to intervene through series of meetings. First, the NCC brokered a meeting in Abuja with the Central Bank of Nigeria to find a lasting solution to the situation of indebtedness by Etisalat. The meeting was attended by the Executive Vice Chairman of the NCC, Prof. Umar Danbatta, the CBN, Mr. Godwin Emefiele, and his team. At that meeting, a decision was reached to intervene in the loan issue between Etisalat Nigeria and the consortium of commercial banks.

The meeting, which held at the CBN 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, the CBN invited Etisalat’s management and the banks to another meeting, where the banks’ planned takeover move was halted. Since then, there had been series of meeting between Etisalat and the banks, but no tangible conclusion was reached.

The issues

Etisalat had in 2013, approached a consortium of 13 local banks for a loan of $1.2 billion for network upgrade and expansion, and the money was sourced in both dollar and naira denominations. Citing economic downturn of 2015 and consequently sharp devaluations of the naira, which negatively impacted on the value dollar-denominated loan, Etisalat wrote its creditors and informed them of its intention to halt the installment payment of the loan, until such a time that it was able raise more money.

Unsatisfied with the excuse from Etisalat to halt the payment, the banks, led by Access Bank, threatened to takeover the operations of the telecoms company, should it fail to meet up with the payment obligations. This situation forced Etisalat to enter into series of negotiations with the banks, offering them different payment options, which the banks rejected. The issue , however, got to its climax penultimate week, when Emirates Telecoms Group Company, Abu Dhabi, one of its core investors, pulled out of the shareholding structure, a move that raised panic among Etisalat’s subscribers.

The Emirates Telecoms Group Company, Abu Dhabi, announced at the Abu Dhabi Securities Exchange in Abu Dhabi, United Arab Emirates, its intention to pull out of the Etisalat Nigeria structure, and approved a complete transfer of 100 per cent of its shares in Etisalat to the United Capital Trustees Limited, the legal representative to the consortium of banks.

Although it is not clear whether the remaining two core investors-Mubadala Development Company, UAE; and Emerging Markets Telecommunications Services (EMTS), will also announce their pullout plan, sources said they may be searching for willing investors that are ready to buy up their shares, so that they can have enough money to pay off the banks.

The announcement, which was perceived by many as a crack in the stronghold of Etisalat Nigeria, has continued to raise concerns as to the survival of the telecoms company, under the management of banks.

Not showing any sign of distress, which the pullout could cause, Etisalat said the pullout and change in shareholding structure would not affect its operations, while promising it’s over 20 million subscribers of steady quality service, going forward. The $1.2billion loan, is a medium-term seven-year facility, obtained by Etisalat for the purpose of expanding its network and improving the quality of service on its network.

Etisalat’s position

In all of these, a source close to Etisalat claimed that it has paid over 50 per cent of the actual loan of $1.2 billion obtained from the consortium of banks.
The banks have however denied the claim, insisting that Etisalat failed to repay its debt. Vice President, Regulatory and Corporate Affairs, Etisalat Nigeria, Mr. Ibrahim Dikko, had explained that in refinancing the loan, Etisalat was meant to pay certain percentage of the loan with interest on a quarterly basis, and that it has been meeting up with that obligation until a time when it started defaulting, due to devaluation of naira, as well as dollar scarcity, coupled with the economic recession.

A source close to Etisalat said the telecom company has paid as much as $500 million (N165 billion), since it commenced payment of the loan in 2014, which is over 50 per cent of the $1.2 billion.

“The actual outstanding on the Etisalat loan is about $500 million (N165 billion). This is in view of the fact that Etisalat has efficiently serviced the $1.2 billion loan up until earlier this year when discussions with the banks regarding the repayment restructuring commenced. I can confirm to you in confidence that the company has made repayment of over 50 per cent of the original loan so far”, the source close to Etisalat said.

Debt assessment by UK based firm
Exotix Capital, a leading frontier and emerging markets investment firm based in the United Kingdom, has said the impact of the medium-term seven-year facility secured by Etisalat Nigeria from the consortium of 13 banks is manageable The firm in a research report entitled, ‘Nigeria Banks’, released last week, said the impact of the $1.2 billion syndicate loan out of which about 42 per cent ($504 million) has been repaid, was “modest”.

“We estimate a modest impact on banks. At a headline level, loans to Etisalat Nigeria represent 1.9 per cent of aggregate bank loans. Likewise on our sensitivity analysis, the Etisalat loans would on average have a -12 per cent, -2 per cent and -0.3bp impact on our FY17 net profit, equity and capital adequacy ratios for the banks, respectively. We believe the banks should easily be able to absorb a shock of this magnitude”, Head of Equities Financials Research, Rahul Shah and Equity Research Analyst, Jumai Mohammed, disclosed.

The report ruled out any likely bailout by the Asset Management Corporation of Nigeria (AMCON), citing the current weak financial state of the corporation, but said, however, that the recent Central Bank of Nigeria’s (CBN) directive to the lenders to halt further action on the debt could provide some short term respite.

On the possible options which the banks could explore to recover the outstanding sum from Etisalat Nigeria, the report maintained that parties could come to favourable terms for loan restructuring.

“However, in the event that these banks aren’t able to restructure the loans at favourable terms with the company, then one of two things will have to happen: The banks swap their loans to equity, recognising the loans as investments. We don’t expect banks to have the capacity to take on such investments or be a willing party to a loss-making underlying asset. The banks restructure the loan, although in the near term they will be required to make provisions on the loan, until they find a buyer. We believe the second scenario is more likely, but the banks could possibly resolve with a new buyer before the end of the year”, the report added.

Shareholding structure in Etisalat
Etisalat Nigeria is owned by three core investors, made up of two international investors and a local investor. The two international investors are Emirates Telecoms Group Company, Abu Dhabi and Mubadala Development Company, UAE, while the local investor is Emerging Markets Telecommunications Services (EMTS). The shareholding structure in Etisalat Nigeria is such that Mubadala Development Company, UAE, owns 40 per cent shares; Emirates Telecoms Group Company, Abu Dhabi, owns 45 per cent shares; and Emerging Markets Telecommunications Services (EMTS), which is owned by local investors in Nigeria, has 15 per cent shareholding.