Analysts and investors have reacted positively to MTN's move to pay $250 million (R3.8 billion) towards reaching a settlement with Nigerian officials over a $3.9 billion (R60 billion) fine.
"I think it is a good sign and perhaps might show that both the operator and the regulatory authorities in Nigeria are moving a step closer to a settlement," says Ovum senior analyst Richard Hurst.
MTN announced yesterday it had paid the federal government of Nigeria what it called a "without prejudice good faith payment" of 50 billion naira ($250 million) "on the basis that this will be applied towards a settlement, where one is eventually, hopefully, arrived at".
"The down-payment of $250 million indicates MTN is becoming confident the final quantum of the fine will be more palatable to MTN," says Africa Analysis MD Dobek Pater.
He explains the "good faith payment" is only around 6% of the total pending fine but could represent 17% of a $1.5 billion final settlement, or a quarter of $1 billion, should that be the settled on amount.
"In the latter cases, the $250 million would be a considerable down-payment in expectation of an outcome satisfactory to MTN; for example, 25% down-payment now, another 25% upon conclusion of the negotiations, and payment of the 50% balance in two quarterly instalments," he adds.
Hurst agrees MTN's strategy "will make the pain of paying out a large sum less painful, or rather soften the impact of the fine on the balance sheet and cash flows".
The original $5.2 billion penalty was first issued in October last year because MTN failed to disconnect 5.1 million unregistered SIM cards on its Nigerian network by a Nigerian Communications Commission (NCC) deadline. The NCC later dropped the fine by 25% to $3.9 billion.
Court battle over
MTN has also dropped its legal battle in the Federal High Court in Lagos over the matter "in an effort to achieve an amicable settlement", while executive chairman Phuthuma Nhleko continues to lead a team engaging with Nigerian authorities to find a settlement.
Pater says there must have been sufficient progress in the ongoing negotiations between MTN and the Nigerian government to make MTN realise this is the better option to conclude the case.
"I think this is perhaps the bigger sign of good faith as both sides seemed prepared to engage in a protracted legal battle which would have been costly to both sides," adds Hurst.
MTN and the NCC had previously been given until 18 March to settle the issue out of court, after both parties had launched court cases against each other.
Market reaction
The payment comes a week before MTN announces its results for the year ended 31 December. The telecoms operator has already warned earnings will likely be 20% down from last year ? impacted by "operational underperformance in Nigeria, resulting from the subscriber disconnections and the withholding of regulatory services".
"MTN's results for FY2015 had already been negatively impacted by this development. However, to restore investor confidence, it is important for MTN to demonstrate that positive progress is being made on this front. Judging by yesterday's share price move, investors reacted positively but are being cautiously optimistic," says Pater.
The MTN share price closed 0.9% higher yesterday on the back of the news ? at R129.05 a share. The company's stock on the JSE has dropped around 32% since the fine was announced four months ago.
"I think that investors will continue to exercise caution when dealing with MTN. While these are positive steps towards a resolution, the operator will need to get this issue behind them quickly," adds Hurst.
BMI-TechKnowledge director Brian Neilson says MTN has assembled a very high-level team of "legal beagles" to handle this matter and "are probably getting good advice on every step they take and are certainly finessing it".
"I think the move to pay something in advance is informed by this good advice rather than just an attempt to influence investors," he adds.
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