Etisalat UAE, the largest shareholder in Nigeria’s third largest GSM Network, Etisalat Nigeria, may have discretely agreed to pull out of Nigeria. This was mainly contained in an exclusive report by Premium Times, Bassey Udo on Monday June 19, 2017.
Etisalat has been embroiled in negotiations with a consortium of Nigerian lenders who it owes about $1.7 billion. The story suggest Mubadala has decided to exit Nigeria but are delaying an announcement to ensure a smooth transfer to a potential buyer. Here are the nuggets;
Etisalat Exits
Etisalat UAE invested into Nigeria using the vehicle Emerging Market Telecommunications Services (EMTS). It owns 40% ordinary shares in EMTS and another 25% equity in Preference shares. Former Chairman of UBA, Hakeem Bello-Osagie owns the rest. Mubadala, the United Arab Emirates state owned investing firm, is an indirect investor in EMTS through its stake in Etisalat UAE. It was expected to bailout the Nigerian entity.
The story suggest, Etisalat UAE could be exiting Nigeria as its shareholder, Mubadala has decided not to bail out its Nigerian entity.
Why delay the announcements
- The optics are very key for any negotiations with a potential buyer for Etisalat UAE’s stake in EMTS. A such, announcing that it intends to leave in an acrimonious manner could deter investors and negatively impact on its valuation.
- Analysts also opine that Etisalat’s GSM license may be on the line if Etisalat UAE exits. The GSM license is thought to be issued to Etisalat UAE because they were also technical partners with Etisalat.
- For the Nigerian consortium of banks, it is also important to continue to manage Etisalat UAE considering that their preferred option would have been for the parent company to once again bailout its Nigerian subsidiary.
The way forward?
As negotiations continue, the parties are said to be considering a possible takeover by a foreign firm (an unnamed investment consortium in the UK has been mentioned). For Etisalat and the banks time seems to be running fast and we believe the following options are the like way forward for the company if it plans to avoid going bust.
| Options for Etisalat | Remarks | Downsides |
|---|---|---|
| Launch an IPO | This involves a sell down of shares by existing shareholders to the general public. Etisalat is a well known brand in Nigeria and could attract investor sentiments in an already bullish market. The NSE has also been trying to get Telcos such as MTN to list in the exchange. | This is probably a long term option for the company and its stakeholders. An IPO may take months to materialize and there are no guaranties that it will be fully subscribed. |
| Attract a private equity investor | This is probably the logical path towards getting out of this mess and we understand this is the option being pursued. It involves Etisalat selling to an investor or consortium of private equity investors. | However, this is no silver bullet as PE firms also take time to hammer out deals. Issues like valuations, regulatory approvals, exchange rate, legalities, indemnities etc. take time to sort out. |
| Mike Adenuga | The billionaire investor whose networth is said to be around $6 billion according to Forbes is thought to be interested in acquiring the company. Chairman as he is fondly called has deep pockets and could see this deal as an opportunity to kill off perhaps its closest competition. | Some senior executives of Etisalat have come out to deny this rumour. Whilst, the billionaire investor probably has the cash to buyout Etisalat, regulators (NCC & CBN) may not allow it to fly for obvious reasons. We also see a push back from top executives at Etisalat. |
| Debt to equity conversion | Nigerian Banks were offered an debt to equity swap by Etisalat but they rejected the offer vehemently. | The banks want their cash and nothing else. This is an unlikely cause of action in these negotiations and could only occur if the company is woundup. |
| Mubadala bailout | This option involves Etisalat’s parent company, Mubadala once again coming to the rescue and bailing out its Nigerian subsidiary. | While this may be the best option on paper, as things stands this is infeasible as Mubadala is rumoured to have resigned to exit Nigeria. They have made it clear that they are not providing any more bailout funds |
| Nationalisation | This is perhaps the least preferred but likely action in the event that all fails. The CBN on behalf of the banks will have to bailout Etisalat, thus taking over the company by law. It could use a vehicle like AMCON to buy the loans from the banks and then seize ownership of the company forcing an exit of the current shareholders. | The government has shown apathy towards another bailout but this option remains on the table considering the thousands of jobs that could be lost and the critical role Etisalat plays in Nigeria’s nascent telecom industry |
| Acquired by another foreign Telco | When the V-Mobile had similar funding issues it seek alliances from middle eastern telcos looking for an inroad into Nigeria’s nascent GSM industry. it first got Zain as an investor who then divested to Airtel, an Indian owned GSM Company. Etisalat could also follow this option | Mubadala is one of the largest telco in the middle east so it will be unlikely that it could find a buyer from there. South Africans are also hesitant to commit more funds into Nigeria following the experiences of the likes of Tiger Brands and the MTN fine. Looking towards to west to the likes of T-Mobile, Verizon, Orange may be an option. Nigeria is Africa’s largest GSM market with over 90 million internet hungry consumers. |
Note: An earlier version of this article has suggested Mubadala had direct interest in Etisalat Nigeria.