MTN Group has not seen the last of the impact of the onslaught of the government on its Nigerian unit, the latest being the placement of its Long-Term Foreign-Currency ‘BB+’ Issuer Default Rating (IDR) on Rating Watch Negative (RWN)by Fitch Ratings.
The credit rating agency said in a note to The Nerve Africa that it took the action following announcements that Nigerian authorities put forward $10.1 billion of claims to MTN related to alleged tax violations and illegal cash repatriations from the country. The claims exceed MTN’s total debt of $6.7 billion at the end of the first half of 2018.
The central bank of Nigeria claimed that the South Africa-headquartered telecoms company repatriated $8.134 billion illegally. The Bank went ahead to fine MTN’s bankers a total sum of $15.58 million as a result. Likewise, Nigeria’s attorney general said the company owed $2 billion in back taxes. Although the company has denied involvement in any illegality and has sought relief from a Federal High Court in Nigeria, Fitch says the RWN reflects the risk of a potential spike in leverage and liquidity pressures if the company fails to resolve the disputes with the Nigerian government.
“There is considerable uncertainty surrounding the regulatory developments in Nigeria,” Fitch says. “The potential
impact on MTN’s credit profile is hard to predict. Under certain scenarios in our analysis, MTN’s rating could be downgraded by one or more notches. A lack of visibility in Nigeria could lead us to increase the weight of the Nigerian operating environment in our overall assessment of MTN’s rating.”
Fitch does not see a resolution that would not see MTN part with any money as settlement, with the ratings agency stressing that a final settlement amount and payment terms could make the company’s leverage increase significantly and might put liquidity and cash circulation ability under pressure.
However, Fitch says the tax claims are not too damaging for MTN’s credit profile, “as the Nigerian unit generates strong free cash flow that can be used for any potential claim payments”.
MTN has lost more than 30 percent of its value since August when the central bank announced it expects MTN to return the $8 billion taken out of the country.
The shares of the Johannesburg Stock Exchange (JSE)-listed company fell 2.82 percent on Tuesday closing at R72.