The company said at the end of January that its seeking to raise $4b by selling assets including stakes in IHS and in its Nigerian unit. MTN has already raised about $950mn by selling non-strategic businesses since last March.
The towers business is by far the largest asset that MTN is trying to sell, says Mark Ansley, a fund manager at Argon Asset Management in Cape Town.
Most investors believe that the towers business is valuable, but Ansley takes a contrarian view. “These tower businesses have large US dollar-denominated debt and once this debt has been serviced there is very little earnings left over and nothing to pay a dividend.”
MTN CEO Rob Shuter is “doing a great job” of talking up the valuation of IHS, Ansley says. “The market is believing his bullish outlook and prospects for realising value from associate and non-core asset sales.”
As of last June, MTN valued its 29% stake in IHS at 23bn rand ($1.6bn). Ansley argues that tower companies are usually valued on the dividend yield basis, but in this case there is no yield. As of September 2019, IHS Netherlands, of which IHS Holdings is the parent company, was carrying loans of $2.7bn.
The cost of financing wipes out cashflow and earnings, Ansley says.
- “The debt inside IHS cannot be ignored,” he says. “I don’t assign much value to MTN’s holding in the IHS Towers business. Effectively it’s not worth anything.”
- MTN may also sell about 14% of its business in Nigeria, which would cut its stake to about 65%.
No value added
Investors have shown themselves willing to buy into the African telecoms towers story. Helios Towers in October raised $364m in its London IPO.
IHS in 2018 scrapped plans for an IPO in the US, citing uncertainty over elections in its main market of Nigeria – though the inherent uncertainty of elections obviously existed when the decision to try for an IPO was made. Reports have suggested that the company, whose investors include Goldman Sachs and France’s Wendel, may try to revive its IPO plan this year.
MTN, meanwhile, continues to face a series of country-specific risks.
- It has a major business in Iran, which may suffer as a result of heightened tensions with the following the Jan. 2 killing of general Qassem Soleimani.
- The carrier is also being sued for allegedly paying Taliban fighters not to blow up its cellphone towers in Afghanistan.
- Regulatory pressures are growing in South Africa, where the competition commission has urged MTN and Vodacom to reduce data prices within two months.
- And as argued in The Africa Report in January, it’s too soon to conclude that the company’s $2bn tax dispute with Nigeria has been resolved, with the demand having been handed over to the country’s revenue office rather than dropped.
“I can’t see why these sales will add value,” Ansley says. Towers are deeply integrated in the running of telecoms operating companies, he argues. Likewise, Ansley says that there is no long-term value added from dividing hotel or hospital businesses between property and operating units.
“They might find someone willing to buy the exposure, but I wouldn’t be banking on it.”
Bottom Line: Fast-growing African telecoms penetration can still lose money if corporate debt levels are excessive.
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