Etisalat remains resilient despite challenges

That Nigeria is a challenging environment despite its large and ever growing population, which serves as a big market opportunity for prospective investors is no more a news, but surviving in spite of these remains the real issue.To many, despite the huge potential, Nigeria presents perhaps the toughest challenges on the African continent – for investment and doing business in whatever field.

When therefore, Abu Dhabi, United Arab Emirates-based telecommunications operator, Etisalat, acquired a $400 million licence in 2007, to operate mobile telephony business in Nigeria, not a few thought the owners, Mubadala and its Nigerian associates, which jointly registered the Emerging Markets Telecommunications Services (EMTS), must be crazy.

But Etisalat and its promoters saw beyond the challenges; they saw the opportunities, the potential and the apparently endless stream of revenues in Nigeria – if only the right investment, the right business model and the right team were put in place. And, the company went for all the above full blast.

Beginning operations in October 2008, Etisalat Nigeria was watched by the ‘let’s wait and see’ crowd, both within and outside the country with unconcealed cynicism. Not many gave it a chance to go beyond the first 24 months; in fact, some thought the company would beat a quick retreat within 12 to 18 months.

Interestingly, a company that was predicted to fold up owing to the challenges in a market that some thought had already become saturated, from the first blast of the whistle became renowned for innovative products, services and offerings. These immediately endeared it to both subscribers of existing operators and the new ones, who began to flock to the network – for a taste of what became the quality service to cherish.

Today, Etisalat, though, among the Tier I operators, may rank least, considering the prowess and the early coming of MTN, Airtel and Globacom, the telecommunications firm has however in the last seven years proven to be a good competition, having had to pioneer so many innovations in the sector.

Currently and despite the challenges of erratic power supply, vandalism and theft, multiple taxation, over-regulation, anti-competition, foreign exchange fluctuations, among others, Etisalat serves 19 million customers across the country with 13 per cent market share.

The firm in its quest to serve its growing customer base better has invested billions of dollars in the industry. The recent being the $1.2 billion, from consortium of banks in 2013, which suddenly become controversial. The company took the loan to refinance an existing commercial medium-term debt of $650 million and continue its network rollout across the country.

Reports have it that the lending banks, about 13 of them had threatened to take over the telecommunications firm to its failure to meet up repayment plans as and when due. Speaking on the company’s indebtedness to the banks and their plan to take over the telecoms firm, Vice President, Regulatory Affairs at Etisalat, Ibrahim Dikko, had assured Etisalat’s subscribers that the issue would be resolved despite pressure from the creditors to take over the operations of the telecoms company.

According to him, “yes we are indebted but we have commenced payment, and we only stopped the flow of repayment few months ago as a result of devaluation of the naira and scarcity of dollar.”

Dikko explained that Etisalat had invested over $2 billion in the telecoms business, which was obtained from its parent company, Mubadala, and its shareholders in UAE and Nigeria.

As such, it needed additional money to expand its business and provide value added services to its growing customers; hence it approached a consortium of 13 local banks to raise additional $1.2 billon as loan.

“In refinancing the loan, Etisalat was meant to pay certain percentage with interest on a quarterly basis, and it has been meeting up with that obligation until recently when it started defaulting due to devaluation of naira, dollar scarcity, coupled with the economic recession,” Dikko said.

Following the threat by the banks to take over the telecommunications company for failing to repay the loans, the Central Bank of Nigeria (CBN), invited officials of the Nigerian Communications Commission (NCC), Etisalat, and the banks to its Lagos office in order to resolve the issue.The meeting ended on the note that Etisalat will not be taken over by the banks, at least for now.

However, reports say the banks have opposed a proposal by Etisalat Nigeria to convert part of the $1.2 billion loan from dollars to naira. They want the Abu Dhabi telecoms group and its other shareholders to recapitalise instead.There had been several media reports that Etisalat’s major shareholder, the Mubadala Group planned to pull out of the company, which the telecommunications firm denied.

Mubadala spokesman, Brian Lott, told Reuters, weekend that a local media report claiming the fund has pulled out of Etisalat Nigeria was wrong and that several proposals are under discussion. He declined to elaborate on the options being considered but said he will know more next week.

The Nigerian affiliate of Abu Dhabi-listed Etisalat has said it is in talks to restructure a $1.2 billion loan after missing a repayment, though sources have said that talks reached a deadlock on April 28.

Sources have said that Etisalat Nigeria has asked its lenders to take equity in the business and convert the dollar portion of the loan to naira, which the banks rejected. The lenders have instead asked parent Etisalat to inject more cash, the sources said.

But Etisalat, which owns 45 per cent of the Nigerian company, is not willing to invest more after converting some of the affiliate’s loans into equity and writing down its investment to $50 million, a source said.Mubadala, which owns 40 per cent of Etisalat Nigeria, had told Reuters in March that the state-owned fund could pare down its stakes in some companies.

The loan that has proved so troubling for Etisalat Nigeria is a seven-year facility agreed with 13 local banks in 2013, to refinance a $650 million loan and fund expansion of its network.

The company, however, is the biggest foreign-owned victim of dollar shortages plaguing Nigeria’s financial system because of lower oil prices and economic recession, leaving it struggling to make the loan repayments.

Nigerian regulators have agreed with local banks to pursue a default deal rather than receivership to avoid a wider debt crisis. But lenders, under pressure to avoid loan-loss provisions, are pushing to finalise the restructuring before half-yearly audits this month.

Dikko, who is optimistic that the matter will be resolved soonest, said Etisalat Nigeria considers it pertinent to state that parties to the negotiation are considering a number of options and discussions are at an advanced stage regarding the syndicated loan agreement with the banks.

According to him, discussions have so far been quite collaborative and “we expect to reach a final resolution next week (this week), by which time we will be in the position to make a definitive announcement.

“Etisalat Nigeria can confirm that negotiations with the consortium of banks regarding the syndicated loan agreement signed in 2013 have reached an advanced stage. As noted in an earlier statement, we are considering a number of options and are not taking anything off the table at this time.”He stressed that Etisalat remains a viable business, having recorded its best financial year in 2016. Parties are keen to ensure that the ongoing discussions and eventual outcome do not affect the day to day operations of the business whether now or after the announcement of our agreement.