Nigerians Banks have expressed reservations at 9 Mobile’s ability to remain viable post-acquisition by Teleology. Banks are concerned of the sustainability of 9 Mobile post-acquisition due to its huge debts, low margins, reducing subscriber base and lack of capital investment. They believe due to this repayment “will hang in the balance for some time.”
This was contained in a report released by Renaissance Capital (RENCAP) and seen by Nairametrics. According to Rencap, the banks made this disclosure in their 9th Annual Pan-Africa Conference held in Lagos on 16-17 May.
The Banks told Rencap that even if Teleology pays down part of the loans, 9 Mobile will still find it difficult to compete with the likes of MTN, Airtel and Globacom all direct competitors who have deeper pockets and have been ramping up CapEx spend and eating into 9 Mobile’s subscriber base.
We are cautiously optimistic on the overall NPL outlook for the sector. On more specific NPL issues, we discussed the ongoing sale of 9Mobile, which also attended our conference. According to 9Mobile management, its $1.2bn outstanding loan has been negotiated down to $800mn, of which $301mn is due to be paid by the new investor, Teleology, on 30 June 2018. We believe the sale will likely close, although the timeframe may stretch beyond 1H18. Our bigger concern is the sustainability of the business beyond the sale given that the $500mn balance of the outstanding debt will be restructured over an eight-year period, including a two-year moratorium. 9Mobile has lost subscribers, its margins are under pressure, and lack of capital investment has made it less competitive than peers. Repayment will, therefore, hang in the balance for some time, in our view.
Why this matters
Nigerians Banks have largely taken provisions on the 9 Mobile loans, suggesting they have basically bitten the bullet. However, investors who expect a possible write back of some of the loans may have to lower this expectation.
Banks do not expect this transaction to solve 9 Mobile’s debacles and rather logically they will prefer a deal that sees the loans completely repaid.
Perhaps the biggest concern for Teleology is how this news may negatively impact on their ability to raise further funds.
They may now find it difficult raising further funds even if they are successful at raising the $301 million balance for the acquisition of 9 Mobile.
Surely, no Nigerian Bank will be willing to loan them any cash or even guaranty the loans assuming Teleology gets a foreign lender.
This suggests 9 Mobile is far from being out of the woods. While they may succeed in paying down the $300 million in loans to the banks, they still have another $500 million in 8-year loans to service.
This leaves the company with limited free cash flows to invest in CapEx, promotions and other activities that can help them compete in a winner takes all market.