Why Nigerian banks have no confidence in 9mobile

The sale of 9mobile to Teleology has been in the news for several reasons. First, it was over a court order halting the transaction for the acquisition of the distressed telecommunication company 9Mobile due to a tendered legal action by aggrieved shareholders of the company. But recently, it is in the news again over the low confidence that Nigerian Banks have on the company.

According to a report made available to Nairametrics by Renaissance Capital (RENCAP), Nigerian banks that attended Rencap’s 9th Annual Pan-Africa Conference held  in Lagos recently revealed that even if Teleology pays down part of the loans, 9Mobile will still find it difficult to compete with the likes of MTN, Airtel and Globacom, which are all its major competitors. The bankers said this might happen because these telecommunication companies have more money than 9mobile and they have also increased their capital expenditure and have taken some of 9mobile subscribers.

This is a huge cause for concern because the banks do not expect this transaction to solve 9 Mobile’s problems, rather they will prefer to see the loan being completely repaid. This news may also affect Teleology negatively as it could make it difficult for them to raise the remaining fund needed for acquisition of the company. On another note, if this transaction is completed, the company may have a limited amount of free cash to use for other activities as the company will still have to pay for the loan services gotten.

In an except from Nairametrics;

We are cautiously optimistic on the overall NPL outlook for the sector. On more specific NPL issues, we discussed the ongoing sale of 9Mobile, which also attended our conference. According to 9Mobile management, its $1.2bn outstanding loan has been negotiated down to $800mn, of which $301mn is due to be paid by the new investor, Teleology, on 30 June 2018. We believe the sale will likely close, although the timeframe may stretch beyond 1H18. Our bigger concern is the sustainability of the business beyond the sale given that the $500mn balance of the outstanding debt will be restructured over an eight-year period, including a two-year moratorium. 9Mobile has lost subscribers, its margins are under pressure, and lack of capital investment has made it less competitive than peers. Repayment will, therefore, hang in the balance for some time, in our view.

The Journey so far for Teleology-owned 9mobile

In 2013, a consortium of about 13 Nigerian banks led by Access Bank, GTB and Zenith Bank gave Etisalat a syndicated loan of $1.3 billion. This loan was expected to help refinance its existing loans and finance its working capital. $650 million was set aside for refinancing and the balance for network expansion.

As of 2016, the company had started defaulting on its loan obligations, which led to a few bailouts from its parent company in Abu Dhabi.

In early 2017, it was reported that the consortium of 13 banks, which lent money to the company 4 years prior, had threatened to take over the telco to recover the money.

CBN along with the Nigerian Communications Commission stepped into the situation to avoid a forced receivership. The consortium of Nigerian banks later requested that Etisalat UAE, main investor, Mubadala step in with another bailout fund but Mubadala hesitated. Mubadala stressed that Etisalat UAE’s insistence to divest from Etisalat Nigeria was part of its global strategy to reduce its several overseas interests.

Etisalat Nigeria then offered the consortium of Nigerian banks shares in the entity via a debt to equity swap deal, but the consortium of Nigerian banks declined the offer insisting on a bailout.

After several unmet deadlines, the consortium of Nigerian banks again put forward a deadline of 23 June 2017 for the Etisalat Group to come up with a solution or transfer its shares to a trust, which would be managed by an independent trustee.

On June 20, 2017, Etisalat Abu Dhabi announced that it had transferred 70 percent of its holding in Emerging Market Telecommunications Services Ltd (EMTS), comprising of 40 percent of its ordinary shares and 25 percent in preference shares respectively. EMTS is the vehicle it used to invest in Nigeria. After the exit, a new board was constituted to run the company pending when it finds a buyer and the name of the telco was immediately changed to 9mobile.

On the 22nd of February this year, Teleology Holdings emerged as the preferred bidder for the acquisition of 9mobile. In order to have full possession of its $500 million 9mobile bid, Teleology, led by Adrian Wood, made a $50 million non-refundable deposit for Nigeria’s fourth largest network operator. They are currently working on raising funds to pay back loans and complete the acquisition.