• Avior's Lerche sees penalty being settled at $1 billion
  • MTN is the market leader in Nigeria's mobile-phone market

MTN Group Ltd.’s biggest market is now its worst headache.

Nigeria’s telecommunications regulator last week slapped the mobile-phone operator with a $5.2 billion fine, wiping almost 20 percent off its market value over the space of four days. There is a lot at stake for Africa’s largest mobile-phone operator and the government of the continent’s top economy as the following charts, converted to dollars as of Friday’s exchange rates, show.

While Johannesburg-based MTN is in talks with Nigerian authorities over the penalty, imposed for failing to disconnect customers with unregistered SIM cards and having incomplete data, failure to negotiate a lower sanction means the company will be paying away more than double the group’s estimated net income for 2015. It also exceeds sales of almost 54 billion rand ($3.9 billion) that the operator made in Nigeria in 2014, about 37 percent of total revenue.

MTN's estimated and achieved revenue and sales compared to fine
MTN's estimated and achieved revenue and sales compared to fine

After buying one of four Nigerian mobile-phone licenses for $285 million, MTN went from handling its first call in the West African country in 2001 to being the market leader with more than 62.5 million customers. Over the same period, its share price on the Johannesburg Stock Exchange soared more than sixfold as the company expanded from its home base into more than 20 countries in the Middle East, Asia, Africa and in Cyprus.

A full payment would exceed the revenue the Nigerian government made from oil in the second-quarter, and be more than double the state’s non-crude proceeds, according to central bank data.

“Speculation is rife that government is under pressure to fill the revenue gap from lower oil prices by any means necessary,” Oyin Anubi, a London-based economist at Bank of America Merrill Lynch, said in an e-mailed note. “This outsize fine represents 20 percent of forecast expenditure and over 60 percent of forecast revenues for Nigeria’s central government this year.” 

Nigeria's second-quarter revenue
Nigeria's second-quarter revenue

Trading in MTN’s shares was halted more than three hours after rebounding from a decline of as much as 9.7 percent on Monday following a report by CAJ News in Nigeria that the company had failed to convince the Nigerian Communications Commission to lower its penalty. MTN hasn’t agreed to the fine and continues to meet with Nigerian authorities to challenge it, a person familiar with the matter told Bloomberg, asking not to be identified because the matter is private.

The dispute with MTN also comes as the economy struggles to cope with sliding oil prices, currency restrictions and no finance minister, with growth at its slowest pace this decade. Investors are losing faith in President Muhammadu Buhari, who has yet to name his cabinet five months after taking office. He has also backed foreign-currency controls imposed by the central bank that have led to dollar shortages.

“Slapping such a large fine on one of the most successful foreign-owned enterprises would likely deter inward investment,” Mark Bohlund, an economist with Bloomberg Intelligence in London, said in an e-mailed response to questions. “It reinforces the impression that the Buhari administration does not have the political clout to cut back spending nor any creative ideas to take the country forward and stimulate other sectors of the economy.”

The dispute couldn’t come at a worse time for MTN, with the company’s 15-year license up for renewal. Yields on the company’s $750 million of debt due November 2024 jumped 118 basis points last week to 5.89 percent, a record high. The Nigerian Communications Commission has fined the carrier about $1,000 per unregistered user, which it wants paid by Nov. 16.

“While we do not expect MTN to have to pay the full fine, the incident has brought to light the high level of risk when doing business in Africa,” David Lerche, an analyst at Avior Capital Markets (Pty) Ltd., said in a note on Oct. 28. He upgraded his recommendation to neutral, after the share price dropped, from underperform, a rating he had only put in place only on Oct. 23. The fine will probably settle at around $1 billion, he said.

“Despite the size of the fine, we do not believe that MTN should exit its Nigerian operations,” he said, adding that the full payment of the penalty will amount to half the ongoing value of operations in the country.

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