The Very Sad Case Of Etisalat Nigeria And Its Creditors

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Etisalat Nigeria is in a very messy situation. They took a loan of $1.2 billion four years ago to refinance a $650 million loan and expand/upgrade their network, when the Naira to dollar rate was in the N100 and something range to one dollar. They have to repay the loan, both interest and principal, in the original loan currency, dollars. 

It must have made sense when they took it. They enjoy a much lower interest rate than if it was a naira denominated loan. And the naira to dollar exchange rate had been fairly stable for up to a decade, making the maths behind the idea a very case-worthy one. Maybe they even ran through a few stress tests, scenarios, simulating historical-like changes in the FX rate and all still looked well. No one who is not God or extremely pessimistic would have guessed something of the magnitude of what is happening now four years ago.

Then they missed the latest repayment due in February 2017. They have paid back over half of the loan and had just about $500 million left to repay over the next three to four years as the loan was a seven year one. They felt they could ease the burden of the loan and make the banks restructure the loan to more favourable terms, like allow them to complete the remaining payment in Naira or allow a more flexible repayment structure. Unfortunately, the restructuring negotiation with the banks did not go well.

Then they tried to get the parent company in UAE to step in and maybe inject new funds into the Nigerian subsidiary to help fix its immediate cash problems. But the parent company is not interested in helping out, in fact, they no longer see the Nigerian subsidiary as a worthy investment and are willing to give up their stake in the company. Which is what they did this week. They gave up their ownership stake/equity in the company to the banks. 

Unfortunately, the banks are not investment banks nor interested in running a telecoms business. So they are going to want to get their owed cash as soon as possible. Either they get paid the cash (which seems not to be happening) or they sell something (which is where the whole situation seems to be heading). The trouble is that Etisalat UAE told their own shareholders that the ownership stake they are giving up is actually worthless, making it seem like the banks got something that will be very difficult to sell. Now they are dragging Etisalat Nigeria to EFCC, according to Sahara Reporters, that the company most likely didn't use the loan for network expansion/upgrade. That they can't see any significant assets acquired with the loan and that the company management must have embezzled the loan money. 

What do I know for sure?

For one, Etisalat has deep money problems. It is not just the loan repayment they defaulted on, they are owing some of their key vendors. They owe IHS, their tower and base stations facility provider, millions of dollars (I hear) which is almost ruining IHS' financial situation. So it is obvious that they do not have the money to service the loan for now.

Secondly, there is no strong hope of things improving. In 2015, I heard from an insider that Etisalat Nigeria is not turning profit. And I doubt if that situation has changed now. I even believe it must have become worse now. That is probably what is making the banks less open to any long range/term options. So the banks are going to want to squeeze out that cash from Etisalat anyway possible without much care about whether it dies or lives.

Thirdly, NCC and CBN cannot do anything. Are they going to pay the banks the money owed? As long as they won't do that, the only people giving them serious attention are the newspapers so they can spin new sides to the story. 

Fourth, will MTN or Glo or Airtel buy Etisalat? Airtel won't, they are even considering selling off the Africa operations. There are rumors that Glo is considering it, at least some people are trying to make Glo consider it. MTN too might be considering it. Honestly, I don't know. And I think no one knows for now until it probably happens.

Fifth, will Etisalat Nigeria no longer be Etisalat? It's possible. But the parent company says it is open to allowing them pay for continuing to use the Etisalat brand.

Sixth, will Etisalat die? I hope not! But when it comes to money matters, emotions have no place with the banks. And if getting their money out means killing the company, they will.