A few weeks ago, there was a deep outcry in Lusaka, Kitwe, Chingola, Ndola, Livingstone and all other Zambian cities and towns. What could be the problem in the land of Kenneth Kaunda, that could have made people express this general deep anger throughout the country?
Zambians had woken up to the alarming news and were wondering how their best international airport would be taken over by another country. The country has defaulted in its debt repayment to China and consequently, China is about to take over the Lusaka International Airport.
As if that was not enough, a few days later, news went round the land of Chipolopolo that talks were underway for some Chinese companies to take over others priced assets: the power utility company, ZESCO, and other strategic national institutions and assets like KKIA, etc.
Nevertheless, Zambians were not really surprised, because they were aware that their government had been securing unending loans from China in recent years and many were also aware of Zambia’s indebtedness to China to the tune of $8 billion in the past few years.
The outcry was very strong, because Zambian state-owned TV and radio news channel, ZNBC, was already being run by the Chinese, who acquired 60% ownership that has given them influence over what should or should not be premiered on their stations.
The fear of China, the beginning of wisdom
The fear of China taking over national assets has now pervaded the entire African continent, as several African nations stand the risk of losing their sovereignty to this big creditor. The world’s most populous nation will seize national assets, once these owing governments default on the Chinese loans hanging round their necks.
Two weeks ago, Sierra Leone’s newly sworn-in president, Julius Maada Bio, cancelled a $400 million Chinese-founded project to build a new airport in the country. Former President, Ernest Bai Koroma, had signed the loan agreement with China, before he lost election in March; despite World Bank and IMF warnings that the project would impose a heavy burden on the country.
The decision comes amid concerns that many African countries risk defaulting on their debts to China, which might lead to the take-over of several assets funded by the project.
Nigerian projects that could be taken over by China if…
In the past three years, Nigeria has gotten over $5 billion loan from the People’s Republic of China, which has resulted in the execution of infrastructure projects across the country.
This was revealed by President Muhammadu Buhari last month in Beijing, at the China-Africa Cooperation (FOCAC) Round Table meeting, attended by African leaders and Chinese President Xi Jinping. Chinese loans now make up 8.5% of Nigeria’s external debt of $22.08 billion, as at the end of June 2018.
To be fair, Nigeria sets aside a reasonable percentage of its budget for debt servicing yearly, and most likely would not fail to service its Chinese debts. However, Nairametrics takes a look at key Chinese-loan-funded infrastructural projects in the country, which might be taken over by China, in case Nigeria defaults in its debt repayment to the Asian giant, depending on what is contained in the terms of the loan deals.
Abuja Urban Rail System
This $500 million rail project was constructed with loans sought from China and happens to be the first urban rail system in the entire West African sub-region. The rail was commissioned in July this year.
Abuja-Kaduna Rail System
This is another $500 million Chinese-funded rail system that has been completed and operational in Nigeria. The amount was borrowed to complete the project, which brought the total figure to $1 billion. The 180km rail line connects Abuja and Kaduna and was commissioned about two years ago. The rail line system is the first in Africa that uses modern Chinese standard and technology.
Investigations by Nairametrics revealed that the rail line is functioning efficiently with no issues, and one could only hope that it would not be taken over by China.
Upgrading of Airport Terminals
This is one of various on-going projects worth $3.4 billion that Nigeria is leveraging Chinese funding to execute across the country. This amount was jointly borrowed under the administrations of Presidents Muhammadu Buhari and Goodluck Jonathan.
In 2013, Nigeria secured a $500 million loan from China at 2.5% interest rate, for the construction of four international airport terminals in Abuja, Kano, Lagos and Port Harcourt, after signing a Memorandum of Understanding with China Exim Bank. The MoU for the loan was signed in Beijing, with the delivery of the four new International airport terminals to be constructed by the China Civil Engineering Construction Corporation (CCECC).
The new terminals, “designed to rival some of the best around the world”, were to be part of the achievements of President Jonathan’s administration, ahead of its 2015 re-election bid, however, none of the terminals were completed before he lost his re-election bid. The Port Harcourt International Airport terminal, part of the deal, was commissioned last week by President Buhari.
Lagos-Kano Rail Line
This is another project that is part of the recent $3.4 billion Chinese loan to construct infrastructural projects in Nigeria. Though the rail line is an extension of the Lagos-Ibadan standard rail gauge, it is to be funded with about $6.1 billion loan to be used on Ibadan-Ilorin-Minna-Kaduna- Kano line.
The railway will run parallel to the British-built Cape gauge line, which has a lower design capacity and is in a deteriorated condition.
Zungeru Hydroelectric Power Project
This is a $1.2 billion loan power plant that is currently under construction by the China Electric Engineering Company (CNEEC). It was initially billed to be completed towards the end of 2019, but will now be completed in 2020.
The Hydro Power Plant will produce 700MW of electricity and it is a joint project between Nigeria and the Chinese government at a financial contribution ratio of 25/75 per cent respectively. It is expected to produce a yearly power generation of 2,640GWh and supply electricity to the National Grid.
Lagos-Ibadan Rail Line
This rail line is being funded by a $1.6 billion loan secured from the China Exim Bank. A sum of $1.6 billion was borrowed by the current government for the construction of this standard gauge Lagos-Ibadan rail line that will connect Nigeria’s commercial capital, Lagos to Ibadan. The project is a segment of the Lagos-Kano Railway modernisation project.
Fibre Cables for Internet Infrastructure
The Export-Import Bank of China provided a loan of $328 million to support Nigeria’s National Information and Communication Technology Infrastructure Backbone Phase 11 (NICTIB 11) between Galaxy Backbone Limited and Huawei Technologies Limited (HUAWEI). This project is expected to boost Nigeria’s Information and Communication Technology sector.
Furthermore, less than 3 months ago, Nigeria signed an additional $1 billion loan from China for additional rolling stock for the newly constructed rail lines, as well as road rehabilitation and water supply projects.
Can China take over these projects, if…?
The Federal Government hardly disclosed the full terms of its loan agreements with the People’s Republic of China. However, the Federal Government has dismissed insinuations of the possible takeover of the economy, by the Chinese Government, if it defaults on loan terms.
According to a statement issued by the Debt Management Office (DMO) last month, Chinese loans are cheaper compared to other international bodies and agencies and there is no risk of default on the Chinese loans.
“The public should be assured that Nigeria’s public debt is being managed under statutory provisions and international best practices, and there is no risk of default on any loan, including the Chinese loans.
“Thus, the possibility of a takeover of assets by a lender does not exist.
“For the avoidance of doubt, government’s borrowing in the domestic and external markets, including Chinese loans, are all backed by the full faith and credit of government, rather than a pledge of government’s assets.”
Nigeria won’t default in repayment
Meanwhile, President Muhammadu Buhari disclosed in Beijing last month, during the FOCAC meeting that Nigeria would repay the loans “as and when due”.
The president said:
“These vital infrastructure projects synchronise perfectly with our Economic Recovery and Growth Plan. Some of the debts incurred are self-liquidating. Our country is able to re-pay loans as and when due in keeping with our policy of fiscal prudence and sound housekeeping.”
In her opinion, an economic expert, Sarah Pius, said:
“So far, China recently threatened to take over national assets in Zambia, for defaulting in loan repayment; then, what stops it from doing the same to Nigeria, if she fails to service the debts?”
An economist and former Director-General, Abuja Chamber of Commerce and Industry, Chijioke Ekechukwu, believes that Chinese loans are not totally bad. He said,
“I don’t have any problem with Nigeria borrowing from China. The only problem I have with Chinese borrowing is that the entire funds will eventually be repatriated to China.
“This is so because when the Chinese Government gives you loans for infrastructure, they will insist that only Chinese companies handle the construction.
“These funds end up going back to China instead of creating more wealth in Nigeria.”
However, speaking with Nairametrics, Kunle Bada, an Economics lecturer at the Adekunle Ajasin University, Akungba Akoko differs. He said,
“I don’t believe the Nigerian government will be that naughty to include the takeover of national assets in its loan terms with the Chinese government. So, I don’t even want to think of possible takeover of our infrastructure, in case we default in loan repayment.”
Since the President has assured that loans will be repaid as at when due, one can only hope that Nigeria keeps to that promise, in order to prevent Nigerians from going through the agony and anger Zambians are still passing through.
Analysis: Airtel Nigeria is winning where it matters
Airtel has left no stones unturned in ensuring that its provisions are top-shelf – subscribers to the network, of course will have their own ideas.
Airtel might have won our hearts over with internet-war adverts starring our favourite tribal in-laws, but its fundamentals are what will make us the bucks that keep us happy. Airtel Africa Ltd is a subsidiary of Indian telecoms group, Bharti Airtel Ltd; the group has left no stones unturned in ensuring that its provision of prepaid plans, credit transfers, mobile internet services, messaging, roaming facilities and more, are top-shelf – subscribers to the network, of course, will have their own ideas.
Since last year when Airtel Nigeria became the second telecommunication company in Nigeria listed on the NSE, the company has experienced a steady level of growth. With a presence in 14 African countries, the group’s strength lies in its diversity with stronger companies mitigating the poor performances of others.
Performance Overview: Airtel Africa
Airtel Africa’s report for the year ended March 2020, revenue jumped by 10.9% from $3.1 billion at the year ended 2019 to $3.4 billion in 2020. The consolidated profit before tax also jumped by 71.8% from $348 million in 2019 to $598 million in 2020. However, profit for the period dropped by 4.23% with earnings of $408 million in 2020 from the $426 million it had earned in 2019. A reason for this is the tax figure that moved from a credit of $78 million in 2019 to tax payments as high as $190 million in 2020. Total assets also jumped by 2.41% from 2019’s value of $9.1 billion to $9.3 billion in 2020 primarily as a result of their acquisition of more property, plant, and equipment (PPE). The total customer base grew by 9.3% to 99.7 million for the year ended.
Full Report here.
Revenue growth of 10.9% was driven by double-digit growth in Nigeria and East Africa. However, the rest of its African operations experienced a decline in revenue. Its success in Nigeria is especially commendable, considering the fact that the company lost more than 100,000 subscribers in Nigeria between December 2019 and January 2020. Raghunath Mandava, Chief Executive Officer, remarked that the results which were in line with the group’s expectations, “are clear evidence of the effectiveness of our strategy across Voice, Data and Mobile Money.”
Behind The Numbers – Nigeria
Airtel Nigeria’s performance indicates the company is making the right calls in a very competitive industry. Nigerians are fickle when it comes to data and voice but will spend if the service is right. The company grew its data revenue by a whopping 58% to $435 million a sign that its strategy to focus on data is working. Voice Revenues for the year was up 15% to $850 million. In total, Airtel Nigeria’s revenue was up 24.4% to $1.37 billion. Ebitda margin, a number closely watched by foreign investors 54.2% from 49% a year earlier. Operating profit for the year ended also jumped by 52.6% for the year from 2019 and 32.4% from Q1 2019. Total customer base in Nigeria also grew by 12.5%.
Nigeria is surely critical to Airtel Africa’s future seeing that it contributes about one-third of its revenue. Recent results thus indicate it is winning where it matters most and it must continue to stay this way if it desires to survive a brutal post-COVID-19 2020. Telcos are expected to be among the winners as Nigerians rely more on data to work remotely but there are other players in this game. Concerning the impact of the pandemic, he explained that at the time of the approval of the Group Financial Statements, the group has not experienced any material impact arising from the impact of COVID-19 on its business.
On cash flows…
The group has also taken measures to enhance its liquidity. The CEO explained that it is moving its focus to enhance liquidity towards meeting possible contingencies.
“Having considered business performance, free cash flows, liquidity expectation for the next 12 months together with its other existing drawn and undrawn facilities, the group cancelled the remaining USD 1.2 billion New Airtel Africa Facility. As part of this evaluation, the group has further considered committed facilities of USD 814 million as of date authorisation of financial statements, which should take care of the group’s cash flow requirement under both base and reasonable worst-case scenarios.”
To this end, they have put in the required strategies to preserve its cash as its cash and cash equivalents, consequently, jumped by 19.1%.
Investors looking at this impressive result will be wondering if this portends a buying opportunity. Airtel Nigeria closed at N298 on Friday and has remained at this price for about a month. The stock is quite illiquid and is not readily available to buy.
It’s the price to earnings ratio of 4.56x makes it quite attractive. Further highlighting this opportunity is its price-to-book ratio which is as low as 0.5273, suggesting that the stock could be undervalued. Whether it is available to be bought, is anyone’s guess.
Analysis: Nestlé strong but exposed.
Being a market leader is great, but in times of economic despair, it can quickly turn you into prey.
With about six decades of being the choice companion for families within Nigeria and the diaspora, Nestlé Nigeria Plc has positioned itself as one of the largest food and beverage companies on the continent. Owing to the expansive growth of Nigeria’s population – one projected to reach 300 million by the year 2030, as well as the growing middle class, the FMCG sector has a very positive outlook.
Consequently, Nestle’s leadership in the industry and its huge market size expectedly gives it a huge advantage. However, with the global economy barely racing against the impact of the Covid-19 pandemic, even the brimming FMCG sector will experience its own level of disruption.
Nestle’s recently released Q1 2020 financials reveal a revenue decline of 0.9%, as it dropped to a marginal ₦70.33 billion from the ₦70.97 billion turnover it garnered in Q1 2019. The profit before tax also experienced an 8.7% drop while the profit after tax had a 12.84% drop, both yielding ₦17.5 billion and ₦11.2 billion respectively, for the first quarter of this year. This is predominantly owing to its increased losses from its overseas activities.
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The company procures all of its raw materials on a commercial basis from overseas and local suppliers; consequently, the percentage of its supplies dependent on international suppliers had a negative impact on its Q1 2020 financials. Its profits were plagued by a foreign exchange loss of ₦154.7 million from ₦18.9 million, an even higher loss of 720.6%. While the company did not disclose the value of its export revenue, we believe it too might have suffered from reduced exportation in the latter part of the quarter.
The group has since been taking on expansionary projects, such as its launch of a second beverage production plant in Ogun State in February of 2018. The company, on a continuous basis, explores the use of local raw materials in its production processes, contributing its own quota to the Nigerian economy.
Just last week, Nestlé’s stocks went up 2.56% to close at ₦1000, a price it still currently holds today after markets closed. Its price to earnings ratio is 18 and its earnings per share (EPS) of 55.54, signal an investor sentiment of confidence. However, its high price to book ratio of 13.9865 reveals that the company is slightly overvalued and its price of ₦1000 makes it attractive primarily to institutional investors that can afford to purchase large volumes of the stock enough to benefit from its steady growth in value. The company had proposed a dividend payout of ₦45 per share. This also comes after paying ₦25 per share interim dividends earlier. Its dividend yield at the time of writing this is 7%, further heightening the possibilities for the income investor.
While the company has strong fundamentals governed predominantly by its position as a market leader, its years of experience, and its existence in the FMCG sector, it too might not have a smooth sail in the coming quarter. Its overseas business from both the supply and the demand sides are expected to experience a further decline, ultimately resulting in an even lower relative turnover and lower earnings.
We also expect the decline in average disposable income of Nigerians from loss of jobs and an overall wariness of the economic impact of the pandemic, to further drive down turnover; however, sound operational efficiencies and cost control/ profit strategies by the group could ease the burden. The company fundamentals remain strong but its exposure to consumer disposable income remains a major concern. There is always a cheaper alternative and when your pocket empties your choice for cheaper substitutes swells.
Analysis: MTN’s blow out Q1 profit vs Covid-19 headwinds
Covid-19 does posses some risk for the company, particularly in the Nigerian context.
If there is any network that has grown with its audience in Nigeria, it is MTN. With its most active users covering a demography of age 18 to 27, it is the network for the tech-age youth. From keeping them up all night with friends for Extra Cool calls to the nostalgic adverts, the network has had its fair share of growth – and signals show no sign of it slowing down.
Just like its brand, the company has strategically positioned itself and made expansionary decisions to get it to where it is – the second most capitalized stock in the NSE. MTN Nigeria’s (MTNN) Q1 2020 financials show that the company has it good and we’re not surprised.
Its results reveal a great quarter for the telecommunications giant with a 16.7% gain in revenue, making ₦329.1 billion in the first quarter of this year in comparison to the ₦282.1 billion it made in the comparative quarter, Q1 2019. The telecommunication industry has naturally enjoyed a spike in usage since the last month of the quarter owing to the enforced lockdown, and its streak is still in motion.
With a ₦51.1 billion profit for the period in comparison to Q1 2019 of ₦48.4 billion, it disclosed profits 5.9% higher than last year – even with increased finance costs of 25.3% percent revealing the capital-raising measures taken by the group to stimulate its operations. It was also in line with this that the company recorded a jump of 103.5% in interest expense on borrowings from ₦7.9 billion in Q1 2019 to ₦16.1 billion in Q1 2020. Total value also recorded a jump as there was a 35.3% growth in the group’s net asset from Q1 2019’s ₦145 billion to Q1 2020’s ₦196 billion.
Its revenue figure is defined by a jump in voice calls of 6.14% from the ₦182.8 billion earned in Q1 2019, to its Q1 2020 ₦194 billion turnovers. However, it is nothing compared to the 58.84% increase in revenue derived from local data usage (excluding roaming data) in the quarter from Q1 2019. Value-added service and digital services also witnessed a jump of 33.93% and 12.11% respectively. Having settled the $2 billion claim for back taxes it was plagued with last year that swayed investor confidence, it certainly came back strong this year.
Naturally, the lockdown has contributed its fair share to the performance of the stock though most of this will reflect in its second-quarter results. With more people using their phones, we expected a spike in revenue governed by increased data usage. This trend is bound to be higher in the second quarter as more Nigerians choose to work from home relying on internet data to power their tasks. And for those without jobs, the internet serves as a perfect companion in both times of need and despair.
The telecommunication industry itself is a growing one; Nigerian Communications Commission (NCC) reveals that as at Q4 2019, the telecoms industry contributed 10.60% to the GDP of the country and the total active telephone subscribers in Nigeria as at January stood at 185.7 million. With MTNN holding the largest market share of active telephone subscribers – 38% of GSM subscribers and 43% of internet subscribers, there is no doubting its growth trajectory.
Covid-19 does posses some risk for the company, particularly in the Nigerian context. In times past, the government looks for who to prey when its revenues are faltering. MTN was once a prey and it paid a huge price for falling into the government’s trap. As the economy falters more eyes will focus on organisations that are posting monstrous profits. Taxes, penalties, donations should interest the government and MTN would be careful to protect investor interest while giving to Ceasar its due.
MTNN and the Market
MTNN’s share price has had a turbulent 2020. The stock is up 6.6% YTD and fell to a year low of N90 in March. At a price-earnings ratio of 11.3x investors are bullish about its ability to continue to deliver impressive growth. MTN has had a nice ride since its listing about a year ago. The first wave was observed within 48 hours of its being listed on the NSE for the first time in May 2019 when it was immediately ranked amongst the NSE top 5. It also didn’t take a couple of months before it shook the market by becoming the first on the NSE, temporarily surpassing Dangote Cement.
Having settled its tax disputes, its shares hit an all-time high of N159 per share before pulling back as investors worried about the faltering economy. MTN share price is still a bit off its 2020 high of 127 and could well be on its way there.
The price closed at ₦112 on Monday 11th May with a 52-week range of ₦90 and ₦159.3.