MTN's R119bn Nigeria shock turns contagious

31 August 2018 - 09:54 By Nick Hedley
MTN's head office in Johannesburg.
MTN's head office in Johannesburg.

Other SA companies with Nigerian exposure slumped in the wake of MTN's 19% crash

MTN’s love for high-risk emerging markets has come back to bite it again.

The mobile operator’s shares collapsed on Thursday, crashing 19.4% to R86.50 and bringing losses for investors in 2018 so far to a whopping R95bn.

The latest spark was a demand by Nigerian regulators that it return as much as $8.1bn (R119bn) they say the SA company moved out of the country illegally.

This is just the latest blow for Africa’s biggest cellphone company by subscribers, which has been hammered by US President Donald Trump’s sanctions on Iran, meaning it may not be able to repatriate R3.4bn from that country.

MTN said on Thursday the Central Bank of Nigeria (CBN) told it that dividends it moved from the country between 2007 and 2015 had to be returned. That pushed MTN’s share price down 19.4% to R86.50 on Thursday, the lowest close in nearly a decade.

MTN, which was cleared of wrongdoing by the senate of Nigeria in November 2017, said the re-emergence of the issue was “regrettable” and would weigh on investor confidence in Africa’s most populous country.

The panic spread to other SA stocks with Nigerian exposure as regulatory risk weighed on investors’ minds.

Shoprite, Africa’s biggest supermarket retailer, fell 4.8%, while Naspers, whose MultiChoice Nigeria business is grappling with its own regulatory issues, shed 6.4%.

Coronation Fund Managers, one of MTN’s largest shareholders, fell as much as 6.6%.

Government employees, via the Public Investment Corporation, lost more than R5bn on MTN’s share price slide.

David Shapiro, deputy chairman of Sasfin Wealth, said that he was “shocked by the news” and that it reinforced his “very sceptical” stance towards investments in the rest of Africa.

Despite the continent’s potential, “you have governments, and I must include SA, that are largely unpredictable”.

MTN said it planned to “vigorously defend” its case. The company is planning a public listing in Nigeria and is trying to get a mobile money licence in that country – its largest market.

CBN spokesperson Isaac Okorafor denied that the central bank was on a “witch-hunt” against the company, as some analysts claimed. “These are established cases of gross violation of laws and regulations …. Examiners were sent to these banks, the cases were thoroughly investigated [and] all parties were invited by CBN to a meeting, and responses were obtained clearly proving that laws and regulations were breached,” Okorafor told Business Day by e-mail.

CBN said in a tweet it had “slammed” fines worth a combined $16m on Standard Bank’s Stanbic IBTC unit, Citigroup, Standard Chartered and Diamond Bank for their role in moving the funds.

Shares in Standard Bank closed 2.4% lower at R185 after it said its portion of the fine was about R75m. The bank would discuss the issue with CBN.

A Standard Chartered representative said the company was in talks with regulators and “we look forward to a rapid resolution and satisfactory outcome of this matter”.

Vestact portfolio manager Michael Treherne said CBN was seemingly suggesting that MTN colluded with multiple international banks to shift funds, “which seems highly unlikely” given that banks were cautious and the rewards were small.

If MTN lost this battle, Treherne said the group would probably have to borrow cash to send to its Nigerian business, which would then be locked up in that country. The group would have to pay interest “on a loan it doesn’t need” and would also be exposed to currency risks given that the loan would likely be rand or dollar denominated.

Treherne said MTN’s talks with CBN about a mobile money licence were “probably completely off the table until this is resolved — that was potentially a big growth area for them”.

Vestact was waiting for more information before making “any hard calls”.