Deadlock: Banks Have Refused Etisalat’s “Trojan Horse” Offer

Nairametrics| The 13 Nigerian banks that loaned Etisalat Nigeria, $1.2 billion in 2013, insist the bank must, repay the dollar portion of the loan in dollars. This amounts to $235 million.  At the current inter-bank rate, that could cost Etisalat about N74 billion. This may seem like a logical offer, considering that Etisalat earns its revenues in Naira and thus will be in a better position to repay its loan without risk of a further devaluation of the Naira. However, banks didn’t take the bait.

Here is why the banks are rejecting the offer

• The banks also had to borrow in dollars to be able to on-lend to Etisalat. Thus, converting the loan to naira in order to match Etisalat’s cash flow would mean that they will have to carry the FX risk.
• The banks thus asked Etisalat to reach out to their parent company to fund the repayment of the loans
• Ironically, regulators are said to be favourably disposed to converting the denomination of the loans to Naira.
• A further devaluation of the Naira means Etisalat could be back to square one even after a deal is reached.
• The Central Bank of Nigeria (CBN) and the Nigerian Communications Commission (NCC) are yet to release official statement regarding the meeting it held on Thursday to mediate between the banks and the telecoms firm.

A cross section of analyst surveyed in the media believe the local banks should not have disbursed the facility in dollars given that Etisalat earns its revenues in Naira. However, most multinationals prefer dollar denominated loans because they attract cheaper interest rates. But that is based on a fallacious assumption that the exchange rate will remain stable in perpetuity.

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