MTN endures really bad week
It has been a tough week for MTN, as the company's share price took a nose-dive following news that its Nigerian division faces a R71 billion fine from the Nigerian Communications Commission (NCC) for allegedly failing to disconnect customers with unregistered SIM cards.
MTN issued shareholders with an update this morning, saying the "group CEO is engaging with the Nigerian authorities on the regulatory aspects of this matter".
On Monday, MTN confirmed it had been slapped with the fine which relates to the timing of the disconnection of 5.1 million MTN Nigeria subscribers who were disconnected in August and September.
The fine, which is the equivalent of around one trillion naira, is the combination of a fine of N200 000 for each unregistered subscriber. This after MTN allegedly missed an August deadline set by the NCC for all mobile telecoms companies operating in the country to deactivate unregistered SIM cards on their networks.
The Johannesburg Stock Exchange (JSE) has confirmed it is investigating the timing of the MTN SENS announcement on 26 October. News of the fine broke in Nigeria early on Monday morning but MTN only issued a SENS announcement in SA after 2pm. The telco could face further reprimand in South Africa if the JSE finds it failed to inform its shareholders timeously about the fine.
"The investigation will follow due process to establish whether there have been any breaches of the listings requirements and can be a lengthy process," according to Andre Visser, GM for JSE issuer regulation.
"As with all price-sensitive announcements, the Market Regulation team is looking into trades that took place before the announcement in order to determine if there is any evidence of possible insider trading," says Peter Redman, senior technical advisor for market regulation at the JSE.
MTN confirmed via SENS early this morning that "senior management of the company and its advisors" are currently engaging with the JSE on the timing of the fine announcement to the market.
It also advised shareholders to exercise caution when dealing in the company's securities until a further update is given.
This as the mobile giant's share price fell almost 19% since Monday, touching a 2015 low of R150.42 per share on Thursday, although the stock bounced back slightly in early trade today and was sitting at R156.50 by mid-morning. The company's market cap has dropped around R68 billion to R284.9 billion and the share price is now down almost 30% year-to-date.
Nigeria is MTN's biggest market and the telco had 62.5 million subscribers in the country as of the third quarter of this year. Nigeria also accounts for about a third of the group's revenue.
Nigerian authorities play hard-ball
The NCC has given MTN only two-and-a-half weeks to pay the R71 billion fine. NCC spokesman Tony Ojobo was quoted by AFP saying the deadline for the payment is 16 November.
"The key issue is if MTN breached the law or not. Certainly, there was a breach. And if there is a breach, we will apply the law," according to Ojobo.
He also confirmed senior officials of the Nigerian government, the NCC and MTN had begun talks in Abuja to find a solution to the matter.
Earlier this week, Nigerian newspaper Leadership reported the NCC had suspended all regulatory services to MTN Nigeria until the fine is paid.
There are also indications that MTN may be seeking help from the South African High Commission in Nigeria to help resolve the issue.
"[MTN] is engaging the NCC for now; we cannot get involved in the matter until MTN asks us to intervene, but we are watching the process," South African high commissioner to Nigeria, Lulu Mnguni, told ITWeb Africa.
Blood in the water
Ratings agencies wasted no time in cutting their outlook for the telco on the back of the looming fine. Moody's and Fitch have both lowered MTN Group's credit rating outlook to "negative" citing the potential impact of a hefty fine.
"The change in outlook to negative from stable reflects the potential for deterioration in the group's credit metrics and liquidity profile if MTN has to pay the full equivalent $5.2 billion fine in Nigeria," according to Moody's.
Moody's believes MTN "has sufficient headroom" to absorb additional debt to be able to pay the fine but if they had to do so immediately it would reduce the company's financial flexibility to absorb other potential risks. Moody's also acknowledged the challenges faced by MTN due to its negotiation process with the NCC which it believes "is unlikely to be resolved quickly".
"A long negotiation process would put a strain on the relationship and interactions with the Nigerian telecoms regulator and disrupt business continuity, which would have negative long-term consequences on MTN's Nigerian operations."
According to Reuters, Fitch Ratings also said it had revised the outlook on MTN's long-term foreign currency issuer default rating to negative from stable, flagging the risk of a significant cash outflow because of the Nigerian fine.
MTN maintains Moody's Baa2 rating, two notches above junk status, and Fitch's BBB rating.
"The outlook could be stabilised if matters are clarified and resolved with limited or manageable implications to MTN's Nigerian and group operations and to their liquidity profile," Moody's says in a note.