MTN Nigeria has secured a N200 billion ($553.5 million) loan from 12 Nigerian banks. The loan, which the company will pay back over the next seven years (including a 2-year moratorium) will be used to fund its capital expenditure (CAPEX), working capital and new business opportunities as they unfold. The telco seeks to expand its services in the Nigerian market, 41 percent of which it already controls, and grow data revenues.
Rob Shuter chief executive of MTN Group had in April told Bloomberg that plan to list on the Nigeria Stock Exchange (NSE) was progressing and could happen before the end of the year.
The company had disclosed plans to list on NSE following talks with regulators over a $1 billion fine imposed in 2015. The company was slammed with the fine after if failed to disconnect unregistered subscribers, who Nigeria saw as a security risk.
MTN reportedly plans to raise not less than $500 million from the sale of shares, and could sell as much as 30 percent of its Lagos subsidiary.
The deal puts an initial public offering (IPO) believed to have been scheduled for August in doubt. Recall that Nigerian newspaper Daily Trust had last month reported that the IPO may not hold in August. The Abuja-based newspaper, which cited a management source at the Security and Exchange Commission (SEC) noted that MTN had not filled the necessary papers.
The debt option is seen as MTN’s way of boosting its valuation and equity ahead of the IPO; it is called leverage in business. The discount rate applied in a company’s valuation should be dependent on the risks involved in the use of its assets and liabilities to boost returns. And the greater a company’s leverage, the greater its risk. The N200bn loan will also serve as a tax shield for MTN. This is because interest on debt is a tax-deductible expense.
A planned Ghana IPO which Shuter also spoke about in April is ongoing according to the calendar in a prospectus released few months ago. According to the calendar, share allotment ends today, with listing scheduled for September 5.
MTN has till May 2019 to list in Nigeria as agreed with the Nigerian Communications Commission (NCC). The Nigeria subsidiary reported a profit after tax of N80.51 billion ($222.7 million) in 2017, with early signs showing a better 2018. The company reported a Q1 2018 PAT of N32.2 billion after it grew naira service revenue by 14.5 percent to N248.3 billion and data revenue by 73.2 percent year-on-year.