MTN is offering cash for R8.3bn worth of bonds to its lenders as the group looks to narrow its foreign denominated debt.
Africa’s largest mobile operator by subscribers started working in 2019 to reduce debt and streamline its business. As part of the effort, the group set out to raise R25bn by selling noncore assets in an “asset realisation programme”.
Having long surpassed that goal, the group has shifted to reducing foreign denominated debt, which has weighed on a number of large SA corporates due to a weaker local currency. A softening in the rand makes it more expensive to pay back international debt and suppliers.
“We are on course with our plans to improve the currency mix of our debt in line with our strategy,” the group said as it reported third-quarter earnings on Tuesday.
In line with its strategy to deleverage non-rand debt faster and its medium-term target to maintain group or holding company leverage below 1.5-times, MTN issued a cash offer to eligible holders for the $450m it has left of the original $750m 4.755% notes due in November 2024.
A corporate bond is a debt instrument issued by a company. When an investor buys a corporate bond, they are essentially lending money to the company. In return, the company agrees to pay the investor a fixed or variable interest rate over a specified period of time, and to repay the principal amount of the loan at maturity.
MTN reported that its net debt-to-earnings before interest, tax, depreciation and amortisation (ebitda) ratio, which measures a company’s ability to pay off its debt, stood at 0.5-times by the end of the nine-month period to end-September, compared to 0.4-times by the half-year in June. This, the company said, means it has remained well within its loan covenant limit of 2.5-times.
Lenders use loan covenant limits to protect themselves from the risk of the borrower becoming overleveraged. When a borrower takes on too much debt, it becomes more likely that they will default on their loans, potentially leading to losses for the lender.
The group’s holding company leverage has remained steady at 1.5-times from the second to the third quarter, helped by cash repatriated from its various operations. Cash totalling R3.8bn was moved back to the group from its operating companies in the quarter, bringing the total returned so far in 2023 to R8bn.
As part of the wider effort to bolster the group’s liquidity, MTN has also issued rand-denominated bonds amounting to R1bn. By the end of September, the group had access to a war chest of R45.6bn.
Another item on MTN’s agenda, set to boost its coffers, is cash from MasterCard, which is set to take up a minority stake in the group’s R100bn fintech business. MTN said concluding the agreements with Mastercard is a focus in the current quarter, which ends on December 31.
“Commercial agreements signed with Mastercard in August 2023 underscores our approach to partnering with key players to accelerate the growth of our fintech business,” it said.
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