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Renewed Iran ties vindicate MTN

Martin Czernowalow
By Martin Czernowalow, Contributor.
Johannesburg, 21 Jul 2015
For years MTN has been unable to repatriate a substantial amount of revenue earned through IranCell.
For years MTN has been unable to repatriate a substantial amount of revenue earned through IranCell.

As the West looks to re-establish trade and political ties with Iran, market analysts say one of the biggest local beneficiaries of the move would be MTN, which for years has been unable to repatriate a substantial amount of revenue earned through subsidiary IranCell.

Chris Maroleng, executive: group corporate affairs at MTN Group, said this morning he could not comment on MTN's plans for its Iranian operations, as the company is currently in a closed period. "MTN is due to release its interim results on 5 August, and we will only be able to comment after that period."

However, analysts agree that MTN is likely to immediately look at repatriating about $1.2 billion that has been trapped in Iran, after the United Nations brought economic sanctions against the Middle Eastern country in 2012. The figure is said to be amassed dividends and a loan repayment owed to MTN by its subsidiary IranCell, which was established in 2005 and in which MTN has a 49% stake.

The second thing MTN is likely to organise is large-scale imports of ICT equipment to upgrade and modernise its systems in Iran - a move it could not make under sanctions.

IranCell is the Middle Eastern country's second-biggest mobile operator, with about 44.4 million subscribers, and has seen a robust growth in subscriber numbers since inception.

"There is a lot happening for Iran and a lot of it is very positive," says Ovum analyst Richard Hurst. "I expect it will certainly allow the company to pull out its money and bring in IT equipment."

Risk pays off

Hurst says the developments are also likely to vindicate MTN, which came in for criticism about its move into Iran, and its subsequent refusal to cut its losses and pull out of the country. "MTN tends to go into places where angels fear to tread, so there is always a level of risk involved. And in this case the risk has certainly paid off."

The company will now be able to formalise some of its financial structure in Iran, as well as its revenue streams and capex. "At the end of the day, it appears MTN stands to gain a lot from being in Iran," says Hurst.

Dobek Pater, analyst at Africa Analysis, agrees an immediate benefit for MTN would be the ability to repatriate funds from Iran. "Of course, the specifics of this would depend on the tax controls put in place by the Iranian government."

Pater also says renewed trade relations between the West and Iran would alleviate the difficulty of sourcing network and IT equipment from companies such as HP and Sun Microsystems - US companies that would not have been allowed to trade with Iran.

"That would have made it very difficult for MTN to operate there and the company would most likely have had to source its equipment from elsewhere, at the risk of paying higher prices and getting inferior quality.

"Renewed ties also allow for MTN to make its operations more efficient in the country, and the market will become bigger and healthier for MTN, even though it is already one of the better markets MTN operates in, in terms of ARPU [average revenue per user]," explains Pater.

Boosting value

ICT commentator Adrian Schofield also agrees that MTN is likely to be one of big beneficiaries of renewed relations with Iran. "The lifting of sanctions in Iran is good for anyone doing business there.

"What's more, SA is a friendly nation to Iran, so this news should improve MTN's value, allowing it to reinvest profits coming out of there."

Schofield concedes he has mixed feelings about mixing business and politics and the criticism faced by MTN upon entering Iran. "Who's to decide who is right? Business always needs to be pragmatic and deliver returns for investors. So this should not make that much difference on a philosophical level.

"MTN took the risk to enter Iran, hung in there and it looks like it has paid off."

Independent analyst Spiwe Chireka says renewed trade relations with Iran is good news for MTN, as it will allow the operator to free up and reinvest cash.

"We could well see a surge of investment coming from MTN, which could go a long way to support its infrastructure development plans. This was certainly a ballsy move for MTN and a classic case of the company being vindicated."

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