Etisalat and the banks
Emerging Markets Telecommunications Services (EMTS) under the registered name of Etisalat Nigeria Limited has been staving off takeover attempts by a consortium of 13 Nigerian banks over a debt default of $1.2 billion. The company took the syndicated facility in 2013 to expand and further improve on its infrastructure and network in Nigeria but began to default in payment late 2015. After two restructures in 2015, the banks attempted a takeover in 2017, which was only prevented by the intervention of the Central Bank of Nigeria (CBN) and the Nigerian Communications Commission (NCC), which got the parties to fresh rounds of discussions to find amicable ways of settling the debt imbroglio. Discussions are still ongoing, but feelers from the banks indicate they have rejected the equity offer made by the Etisalat and are spoiling for full takeover except better offers are made.
It may be helpful to understand how Etisalat got itself into this trap. In 2013 when oil prices were still at their highest and Nigeria was awash with dollars, the company approached local banks to syndicate a facility to expand its operations to enable it catch up faster with the older telecom companies in an increasingly fiercely competitive Nigerian telecommunications market. Coming sever clear years (in 2008) after the telecom revolution in Nigeria, there were fears that it came after the party had ended. Regardless, it was able to grab a slice of the pie, accumulating over 18 million subscribers over time and established a reputation as the best telco in data service and one of the fastest growing telcos in Africa. It is in a bid to improve and expand its infrastructure network, especially in the absence of national infrastructure backbone that it secured the loan, consummated when dollar was about N197 in the parallel market and all macroeconomic indices looked stable.
Three years later, everything has changed: oil prices have crumbled to far below $50/barrel; foreign exchange scarcity, inflation, unemployment and low wages have tipped the economy into recession. The naira – Nigeria’s beleaguered currency – has taken severe beatings, exchanging as high as N520 on the parallel market at a time. With a devaluated naira and dropping revenues, it is clear to see why Etisalat defaulted in its obligations to the banks.
In many ways, Etisalat’s problem signposts problems faced by businesses with huge dollar components and foreign inputs and expertise in an unstable economy like Nigeria’s. Unfortunately, the telecom industry relies heavily on foreign expertise and equipment. For now, it appears only Etisalat is suffering, but in reality, many other telecom firms may be under strain as well.
Just like Etisalat, the banks too are under pressure from the regulatory authorities to clean up their balance sheets and reduce their non-performing loan ratio so as to prevent a repeat of the banking crisis of 2008 – 2010 where many banks had to be rescued (via AMCON) to prevent a collapse of the financial system. This presents a huge dilemma in an economy where jobs, investments, and confidence in the economy are badly needed to get the country out of recession and unto the path of sustainable economic growth. Faced with a similar problem in 2008 financial crisis, the United States of America choose to bailout big banks and the auto manufacturing companies to prevent the unsavoury effects of the collapse of such big companies on jobs and the economy. Today, those banks and auto firms are back in profitability and creating jobs signposting America’s recovery from the financial crisis.
Effective and robust regulatory intervention is needed to make it easy for Etisalat and other struggling telecom companies in constant need of foreign exchange to sustain their businesses to operate.
We laud the efforts the CBN and NCC have made so far to get the banks to the negotiating table. We hope they will do more to help both parties come to an acceptable resolution of the current crisis and prevent a takeover or liquidation of the company. The consequent job losses and larger effect on the economy will be damaging to the country and the attractiveness for foreign investments.