MTN’s $5.2bn Nigerian fine triggers rating cut by S&P, lowered outlook by Fitch and Moody’s, probe by JSE

By bne IntelliNews October 30, 2015

South Africa-based MTN, Africa’s biggest mobile network operator, saw its credit rating cut by one notch by Standard & Poor's and its outlook lowered by the other two major global rating agencies in one and the same day, three days after the Nigerian Communications Commission (NCC) fined it $5.2bn for failing to disconnect customers with unregistered SIM cards in time.

In addition to downgrading MTN’s long-term corporate credit ratings to BBB-, the lowest rung on its investment grade ladder, S&P placed it on CreditWatch with negative implications.

“The downgrade primarily reflects the heightened regulatory and country risk in Nigeria, as well as the company's reduced liquidity cushion and weaker-than-expected operating results in the first half of 2015, due in part to increased currency volatility. In addition, economic conditions have deteriorated due to depressed commodity prices in MTN's service areas,” S&P said in a statement.

With 62.5mn subscribers, Nigeria is MTN’s largest single market, accounting for 27% of its total customer number in 22 countries in Africa and the Middle East. Nigeria also accounts for about a third of MTN’s sales.

“In MTN's 3Q15 results call, management highlighted the difficulties the group faces in remitting dividends from MTN Nigeria to the parent company,” Fitch, which kept its BBB rating on MTN, but lowered its outlook to negative from stable, said in a statement. This is caused by the Nigerian central bank's tight monetary policy, which is limiting foreign exchange liquidity. “The liquidity squeeze arising from this has been short term. However, if there is no evidence of an improvement in liquidity from the Nigerian operations, it will result in negative rating pressure,” Fitch warned.

Moody’s also cited the pressure on MTN’s credit metrics and liquidity profile arising from the imposed fine as the key reasons to worsen its outlook on the group’s Baa2 ratings to negative from stable.

“Moody's will monitor the developments with specific focus on the speedy resolution with the NCC, the final fine amount, any corporate governance issues as well as any mitigating measures that the Group can put in place,” Moody’s said in a statement.

But while MTN’s management remains in discussion with NCC as to the size and timing of the payment of the fine, NCC spokesman Reuben Muoka told Bloomberg in a text message late on October 29 that the company has to pay the whole fine until November 16.

Meanwhile, Reuters reported, quoting sources, that Nigeria’s federal government at the presidential level met with MTN top executives and the NCC on October 29. MTN confirmed on October 30 that “the Group CEO is engaging with the Nigerian authorities on the regulatory aspects of this matter [the fine].”

Adding fuel to the fire, MTN also said that senior management of the company and its advisors are currently engaging with the JSE Limited, which operates the Johannesburg Stock Exchange, on the timing of its bourse SENS announcement of the fine. Thus, it confirmed speculations of a JSE investigation whether MTN failed to inform the market timeously about the fine, reported earlier on October 30 by the Business Day.

The JSE rules require companies to release an announcement without delay on issues that may have a material effect on the share price. The popular business daily claims that news of the fine broke early on October 26 in Nigeria, but MTN only informed shareholders later that day.

MTN’s share price has plunged some 20% this week, reducing the group's market capitalisation by ZAR68bn ($4.9bn). On October 29, the stock closed at ZAR154.38, valuing the company at ZAR284.9bn.

MTN’s licence in Nigeria expires in February and its renewal could face difficulties if it fails to reach an agreement on the fine.

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