As part of a deal-making spree to unload problematic assets and boost shareholder value, MTN, Africa’s biggest mobile phone group by subscribers, unveiled plans to sell its businesses in
the Middle East in transactions that could be worth as much
as R25bn.
The decision underlines outgoing CEO Rob Shuter’s determination to free the company from the perception that it is constantly fighting fires.
Its aggressive push into war-torn countries such as Afghanistan has landed it in trouble, hobbling growth and whacking its valuation.
Shuter, who will step down in March after four years, said the two-phased process would start with the sale of operations in Syria, Afghanistan and Yemen before putting its stake in its joint venture in Iran — where US sanctions have made it harder to get its share of the earnings — on the chopping block.
It is already in advanced talks to sell its 75% stake in its Syrian business. The business is worth R1.4bn on MTN’s books.
“The operating environments are very complex across all of these regions with geopolitical uncertainty, with a lot of challenges around sanctions and regulatory matters,” Shuter said.
The deals are part of MTN’s stated strategy to shed loss-making e-commerce assets, exit unstable, war-torn countries and leave countries where it has no prospect of reaching second position by market share to sharpen its focus as a pan-African mobile phone group.
At the same time, Shuter has been pushing the company into mobile financial services, music streaming and mobile gaming, pinning its fortunes on a tech-savvy population to counter falling prices for basic telecom services.
Covid-19 tsunami
The announcement of the sale of the businesses, which contributed just over 4% to the company’s core earnings, or earnings before interest, tax, depreciation and amortisation, of R41.8bn comes at an inopportune time for MTN as companies across the world scramble for cash to withstand the rolling Covid-19 economic tsunami.
“It would have been much better to exit some of those operations in a strong oil price environment to realise fair valuations on assets,” said Peter Takaendesa, a portfolio manager at Mergence Investment Managers. “It is very difficult to put a price tag on any of the assets given they are unlikely to trade at free market valuations and the number of buyers may be limited.”
But Shuter said the company would be exiting these markers in an orderly manner over the next three to five years — a sign that the company would wait for commercially sensible prices before letting go of the assets.
“This is not some kind of fire sale. This will be done in a very orderly and responsible way over the next few years.”
David Lerche, an analyst from Sanlam Private Wealth, said that MTN’s operations in Syria, Yemen and Afghanistan were likely to fetch about R5bn combined.
“By contrast, the Iran operation is much larger and MTN’s stake should be worth R10bn to R20bn, depending on how many buyers are bidding. It will be very difficult to extract any sort of premium price for assets in the current environment, so MTN is unlikely to rush sales through,” Lerche said.
The company’s stake in Irancell, in which it holds 49%, could be sold to joint venture partner Iran’s state-linked telecoms company, or other parties not affected by the geopolitical issues at play in the Middle Eastern country, Takaendesa said.
Shares in MTN ended the day marginally weaker, 0.35% down at R59.92. The prevailing share price represents a dramatic destruction of shareholder equity for a stock that fetched just over R200 five years ago, underscoring the company’s run-ins with authorities in some of its markets.
Shuter’s tenure at MTN has been punctuated by clashes with regulators, especially in Nigeria, where authorities accused the company of shortchanging them in its tax payments, stunning it with a demand to return more than $8bn in dividends, which they accused MTN of sending abroad using improperly issued paperwork.
The company is also facing a lawsuit brought by families of US troops killed or wounded by the Taliban in Afghanistan, accusing the company, with others, of funnelling money to the Taliban to launch insurgent attacks on the US soldiers in exchange for protection of its assets and staff. The company has filed a motion to have the case dismissed.
Shuter brushed aside talk that the case was the reason behind the plan to pull back.
“I wouldn’t say that the court case is a particular catalyst,” Shuter said.
News of the planned MTN withdrawal from the region came as the operator reported a 120.5% jump to 430c in first-half headline earnings per share, thanks to favourable currency swings.
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