The Etisalat debt crisis

IN recent weeks, Etisalat, one of the country’s largest GSM providers, has been in the eye of the storm following the inability of its management to service the loan granted the company by a consortium of 13 banks in 2013. The seven-year facility was meant to refinance an existing commercial medium term debt of $650 million and fund the expansion of the telecommunications network.  As a matter of fact, there are allegations that the banks, which have estimated the indebtedness to be in the region of 45 per cent of the company’s equity, are scheming to cash in on the situation in which the company has found itself to take it over. This was after Emerging Markets Telecommunications Services (EMTS), the firm appointed to reach an agreement with the banks on the debt restructuring plan, was given an ultimatum to complete the transfer of 100 per cent of the company’s shares in Etisalat to the United Capital Trustees Limited, the legal representative of the consortium of banks, by June 23.

Nevertheless, the Nigerian Communications Commission (NCC) and the Central Bank of Nigeria (CB N) have stepped into the fray to prevent any untoward eventuality. In a statement signed by its Director, Public Affairs, Mr. Tony Ojobo, the NCC drew the attention of the banks to some provisions in the Nigerian Communications Act (NCA) 2003, saying that they must get regulatory approval before any takeover can take place. Currently, the banks, suspecting foul play after the company allegedly rejected the “viable options” they had rolled out for the loan to be restructured, have asked the  Economic and Financial Crimes Commission (EFCC) to investigate what the company did with the loan it took in a bid to actualise network expansion. Indeed, on June 20,  Etisalat Nigeria indicated that it had initiated changes to its shareholding structure after talks with lenders to restructure the loan failed.

It is necessary to put the Etisalat debt crisis in context, especially given the country’s  current  uninspiring  economic and investment climate and the steady loss of jobs. When Etisalat Nigeria took the loan that has now unfortunately become an albatross in 2013, the naira was N160 to a dollar. Now, even at the official rate, it is N350. Yet Etisalat Nigeria, which earns its money in naira, has to service its loan in dollars because it took it in dollars. This means that Etisalat Nigeria’s woes are tied inextricably to the woes of the naira on the international market.

Again, according to the NCC, average revenue per user has dropped significantly, meaning that the telecommunications companies are barely able to survive. Worse still, the subscriber base is shrinking, such that leading telecoms companies such as MTN, Globacom and Etisalat reportedly lost three million customers in one month alone. Given the fact that the country’s macroeconomic environment  has been indicted, it would be futile to pretend that the Federal Government is not ultimately responsible for the woes of Etisalat Nigeria and indeed every other company that has had to operate under its climate of restrictive, investor-discouraging policies in the last two years.  By refusing to float the naira, the government gives ample room for round tripping and other harmful practices that stifle economic growth, and there simply will be no meaningful change until the government relaxes its stranglehold on the naira and allows it to find its level on the international market under the principles of the free market economy. We believe firmly that the woes that currently assail Etisalat Nigeria are also the lot of many companies in the country, and that danger lies ahead if the fundamental problems are not addressed through the right macroeconomic policies.

The foregoing is of course not to suggest that if any wrongdoing can be attributed to the members of the Etisalat Nigeria management team, they should not be punished. On the contrary, they should be severely dealt with in accordance with the provisions of the law if found to have misappropriated the loan ostensibly obtained to refinance an existing debt and actualise network expansion. It certainly must be demonstrated, and clearly too, that the loan was utilised for the purposes for which it was obtained.  It will certainly be a disaster if Etisalat Nigeria is allowed to go under. The survival of many Nigerian homes hangs on the company, and there are no ready alternatives anywhere. The government needs to do the right thing to protect shareholders, restore investors’ confidence and save jobs. A country desirous of Foreign Direct Investment (FDI) can certainly not give the impression that financial crimes, or indeed any other kinds of crime, can go unpunished.