Latest Updates on Etisalat's Debts

The 13 Nigerian banks that loaned Etisalat Nigeria, $1.2 billion in 2013, insist that Etisalat must, repay the dollar portion of the loan in dollars. This amounts to $235 million.  At the current inter-bank rate, that could cost Etisalat about N74 billion. This may seem like a logical offer, considering that Etisalat earns its revenues in Naira and thus will be in a better position to repay its loan without risk of a further devaluation of the Naira. However, banks didn’t take the bait.

Here is why the banks are rejecting the offer

• The banks also had to borrow in dollars to be able to lend to Etisalat. Thus, converting the loan to naira in order to match Etisalat’s cash flow would mean that they will have to carry the FX risk.
• The banks thus asked Etisalat to reach out to their parent company to fund the repayment of the loans
• Ironically, regulators are said to be favourably disposed to converting the denomination of the loans to Naira.
• A further devaluation of the Naira means Etisalat could be back to square one even after a deal is reached.
• The Central Bank of Nigeria (CBN) and the Nigerian Communications Commission (NCC) are yet to release official statement regarding the meeting it held on Thursday to mediate between the banks and the telecoms firm.

A cross section of analyst surveyed in the media believe the local banks should not have disbursed the facility in dollars given that Etisalat earns its revenues in Naira. However, most multinationals prefer dollar denominated loans because they attract cheaper interest rates. But that is based on a fallacious assumption that the exchange rate will remain stable in perpetuity.

Etisalat's IHS Debt

Ever since the Etisalat $1.2 billion debt unraveled a couple of weeks ago, we have now had about three commercial banks come out clean to reveal their own portion of the syndicated loan. Access Bank was first to come out with N40 billion, GTB then followed with N42 billion and then Fidelity with N17.5 billion. We still expect to hear from about 10 more banks. But banks are not the only ones exposed to Etisalat. Telecom firms are too and a notable one is IHS.

IHS got embroiled in this web of debt for two main reasons. Firstly, it purchased Etisalat’s cell sites under a sale and lease back agreement. The deal will see Etisalat selling its tower assets to IHS, while leasing it back in exchange for lease rentals. Secondly, it also has a $800m bond which is partly securitized from the cash flows of the Etisalat lease. However, Reuters reported last week that Etisalat was over due on payments by 6 months suggesting that things could get riskier for Bond holders should things go from bad to worse for Etisalat. IHS has now issued a press release explaining its on side of the story.

Here is a rundown;

• Etisalat and IHS have what is called a “Masters Lease Agreement”. This is basically a lease that agreement that allows IHS lease its tower assets to Etisalat in exchange for lease rentals.
• IHS revealed it has experienced volatility “in terms of timing of settlement of invoices with certain customers.” We believe this includes Etisalat.
•  As of 31 December 2016, US$8.5 million was more than 120 days overdue from Etisalat to IHS Holdco. That is, Etisalat was overdue payment to IHS by about 4 months.
• IHS Holdco says the amount represents less than 2.5% of the expected proforma full year combined revenue of the Group for 2016. This suggest, IHS Holco has an annual revenue of a minimum of $340 million annually.
• IHS again issued another press release on March 10 explaining that “approximately US$2.4 million (based on an exchange rate of US$1: N305) was more than 120 days overdue from Etisalat to the FinCo Group. This amount represents approximately 3.7% of the expected full year revenue of the FinCo Group for 2016.”
• This suggest, the $8.5 million was owed to the Holdco Group out of which $2.4 million was owed to the FinCO Group (Nigerian entity).
• Fitch rating agency also believes IHS faces limited risks to its operations in Nigeria following recent press reports about Etisalat Nigeria. It explained that it had already taken cognizance of the risk and assigned a rating of B+/Negative to IHS debt