MTN breaks credit barrier

 

N318b loan syndication: MTN breaks credit barrier

Nigeria did not receive her first sovereign credit ratings until four years ago, when she was assigned a long term foreign currency rating of BB-, putting the country at par with Turkey, Ukraine and Brazil, all in the emerging markets category by Fitch ratings, a leading global rating agency that provides world's credit markets with independent credit opinions.

Though, a BB- rating is below par, it implies that Nigeria has a stable macro-economic outlook and is regarded as a welcome development by analysts home and abroad. Ironically, this below par rating was short lived.

Thanks to the global financial crisis that ravaged  the world’s economy, Nigeria lost $20 billion to capital flight. This impacted the economy negatively, culminating in the crash of Nigeria’s capital market and the subsequent bail out of eight large domestic lenders, as well as depreciation in revenue earned from oil by government.

By August 2009, another globally acclaimed independent credit rating agency, Standard & Poor’s had cut Nigeria’s sovereign credit ratings deeper into junk territory, which has had an immediate effect on credit inflow from offshore lenders to both public and private sectors of the economy. Reason for this is not far-fetched; a country’s credit ratings remains a significant determinant of the credit ratings assigned to corporations within its economy.

Credit drought loomed in Nigeria. And by the first quarter of 2010, the federal government realized it could not fund the 2010 budget adequately, and had to seek parliament’s approval to cut spending. Equally, state governments, with the exception of Lagos State, were expected to be broke and unable to pay salaries by June..  

The  intrigues surrounding the ill-health of the late president, Alhaji Umaru Musa Yar’dua did not also help matters. But more disheartening was the news that Nigerian National Petroleum Corporation (NNPC) is broke, and running at a loss of N200 billion, with liabilities of N146 billion, and $277 million, and hardly a clue as to how to settle its debt.

Foreign banks could not have thought of a more inauspicious time to cut credit lines. By the end of first quarter in 2010, bank guarantees for the execution of local projects in the areas of energy, power and infrastructure development in Nigeria were turned down by Deutsche Bank of Germany, Citibank, ANZ Commerzbank, ING of Belgium, US Exim Bank and HSBC, among others. Local banks equally tightened the noose on lending.

Moving deftly to combat the credit drought, the  Central Bank of Nigeria (CBN), extended guarantees for all interbank and foreign credits to Nigerian banks up till June 30, 2011. Nevertheless, local and foreign credit came in trickles, encouraging multinational companies, especially those in the manufacturing sector to relocate the hub of their West African operations from Nigeria to Ghana.  

Notwithstanding the CBN guarantee, the waning confidence in the Nigeria economy by foreign financiers had so far seemed not to abate.. Ironically, local banks are of the same mind with their foreign counterparts; being also wary of lending after recording huge losses from proprietary trading in the capital market, margin loans, and oil and gas transactions. This must have necessitated President Goodluck Jonathan’s subsequent appeal to his French colleague, President Nicholas Sarkozy, for credit lines to Nigerian companies, during the 25^th Africa-France summit in Nice – France, last week.

However, amidst all this, leading telecommunications provider in Nigeria MTN, has successfully sealed loan agreements worth $2.15 billion with 15 Nigerian and two foreign banks to fund expansion. The consortium of 15 Nigerian banks would provide it with a 250 billion naira ($1.7 bln) five-year syndicated loan, while $450 million in foreign funding would come from Germany's KfW Ipex and the Industrial and Commercial Bank of China (ICBC).

Arranged by MTN Nigeria without subscribing to third party financial advisers, the local financiers of the N318bn medium term facility of five years, which is a milestone in the history of telecommunications in Nigeria, include Access Bank, Afribank, Bank PHB, Citibank Nigeria, Diamond, Ecobank and First City Monument Bank. Others are Fidelity, First Bank, and Guaranty Trust Bank, Stanbic IBTC, Standard Chartered, Union Bank, UBA, and Zenith Bank.

As the largest ever Naira-denominated syndication in the country, this record-breaking financing follows the $2bn facility raised in 2007 which won African Telecoms Deal of the Year by Euromoney. At the time, it was the largest facility granted to a single telecommunications operator in Africa. MTN Nigeria also won this prestigious award for its maiden financing in 2003.

Though investment analysts see the loan facility as of more direct benefit to Nigeria in enabling MTN Nigeria expand quality telecommunication services to more locations across the country,, it is however, also a welcome development and a great credit to the 15 local lenders that accounted for the larger chunk of the loan syndication. It also implies a vote of confidence in the Nigerian economy by China’s ICBC and Germany’s KfW Ipex, major participants in the loan syndication.  

Analysts who share the view that the loan will add considerable value to Nigeria’s economic developmental aspirations, predicate their optimism on the well-documented scientifically proven correlation between improvement in telecommunication and economic growth and development. Development scholars have lately proven that improvements in telecommunications impact positively on economic and development especially in developing countries. Chief Executive Officer of MTN Nigeria, Ahmad Farroukh reiterated this at the formal signing of the loan agreements in Lagos, on Wednesday, June 9, 2010, saying the loans will go a long way in fast-tracking economic growth and development in Nigeria..

According to Farroukh, MTN is not just a mobile player any longer, but a multimedia player in the information and communications technology sector in Nigeria. “It is not as if the mobile market is saturated already. It is not, and all the players have a long way to go in terms of reaching saturation point. However, the industry is redefining itself and the world is moving towards a strong trend of convergence. Technology has provided us with a platform to leverage on this opportunity existent in the market.”

With the investment of well over N700 billion naira in fixed assets and facilities nationwide by September of last year, MTN currently has the most expansive network coverage, spread across the 36 states of Nigeria and the capital, Abuja. The company provides network coverage to more than 83 percent of Nigeria’s land mass, while over 84 percent of the population has access to its services. The company’s digital microwave transmission backbone by last September had covered 10,500km, while the fibre optic cable network had covered almost 8,000km.

These facilities, according to Farroukh, provide MTN Nigeria with a strong financial basis to pursue its goal of extending service to more Nigerians who are yet to experience the telecom revolution, while also improving the quality of service on the network. It would be recalled that MTN Nigeria’s heavy investment in infrastructure enhanced the quality and capacity of its network over 2008 and 2009, and helped boost subscriber base to 33 million customers as at 31 March 2010.

Chairman of MTN, Dr. Pascal Dozie also has his sight trained on the big picture which is the Nigerian masses, especially those outside urban centres. According to Dr. Dozie, the consortium of banks through lending has joined forces with MTN to touch the lives of people nationwide; especially rural folks who always claim not to feel the impact of banks in their lives.

He is therefore grateful to the banks both local and foreign based for the trust placed in the MTN Nigeria brand which finds expression in the unprecedented size of medium term funds availed it, noting that MTN has almost touched every part of the Nigerian population and with this development, more impact is expected.

“The communications industry has tried to bring Nigerians closer to the world,” he said, adding that MTN through the MTN Foundation, has been positively touching lives across the country. The MTN Foundation, which the company’s corporate social investment vehicle represents the first successful attempt by any corporation in Nigeria to systematically manage its corporate social investment processes, employing a specific proportion of its annual profits. No doubt, the new loans will also find expression in even more aggressive and widespread intervention by its severally lauded Foundation..