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5 Possible Reasons Why Etisalat Defaulted

Onome Ohwovoriole by Onome Ohwovoriole
March 9, 2017
in Blurb, Company News, Spotlight
Saka Who? Etisalat Claims 50% Lead In Ported Numbers
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Nairametrics| Business definitely looked rosier for Etisalat after six months of operations in Nigeria. The telecoms company with a current subscriber base of about 23 million was awarded best network based on quality of services indices by the Nigerian Communications Commission [“NCC”]. Other achievements include brand of the year, best customer service and most innovative mobile operator. That was then!

Etisalat Nigeria is reportedly being taken over by a group of 13 Nigerian banks for owing a ₦541.8 billion ($1.2 billion) debt taken in 2013 for network expansion projects. These banks include Guaranty Trust Bank, Access Bank, First Bank, UBA, Fidelity Bank, Ecobank, FCMB, Stanbic IBTC, Union Bank and Zenith Bank. Dollar investments definitely seemed attractive four years ago, when Nigeria’s economy was growing at 7% and oil prices were rising.

Although the telecoms company has not officially addressed the issue, here are five possible reasons why they may have defaulted on the loan:

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Foreign Exchange Devaluation

The massive foreign exchange devaluation may have made it difficult for Etisalat to repay the loan which was in foreign currency. A 35% devaluation of the Naira in 2016 should have prompted the company to make more local currency available for loan repayment. At this point, an increase in running costs would have also been inevitable for the company.

Economic Downturn

The economic crisis in the country resulted in a reduction of average revenue per user, which implied a corresponding revenue reduction for the firm. The gradual switch from voice to data spending also had dwindling effects for Etisalat as bigger operators like MTN and Globacom currently dominate the data market with cheaper plans. Unfortunately, the NCC was unsuccessful in raising data tariffs and enforcing a minimum price floor which would have benefited Etisalat.

Theft and Vandalism

Theft and vandalism of telecommunications infrastructure like fibre optics are major challenges of Mobile Network Operators [“MONs”]; these have resulted in delayed network expansion and loss of service to various regions.

Multiple Taxation

Many government agencies threaten to halt operations of telecoms companies over failure to adhere to their tax policies which are purely excessive. In Nigeria, it’s difficult to obtain Right of Way approvals and the different tiers of government tend to charge at vastly different rates rather than a uniform rate.

Illegal Administration

This involves sealing up of Base Transceiver Stations (BTS) by the local, state or federal government due to environmental or tax related reasons. Although the action has been declared illegal, the tiers of government are joined by area boys to take laws into their hands. The telecoms sector is reported to have contributed over ₦500 billion to the government from administrative earnings.

What’s next for Etisalat?

Since dollar shortages have made it hard for Etisalat and other companies in this predicament to repay, the company may attempt repaying the loan in Naira at the dismay of lenders- they can claim to have saved ‘face’, right? If this Naira repayment fails, Etisalat may also face restructuring by the Asset Management Company of Nigeria [“AMCON”].

Companies in the telecoms sector often suffer due to frequent changes in technology, consumer tastes and harsh macroeconomic conditions. Starcomms and Mobitel are cases in point that started off with huge attraction and then folded up. Etisalat Nigeria began operations in 2008 and is a joint venture between Mubadala Development Company, Etisalat of the United Arab Emirates (UAE) and some domestic investors.

Tags: CBN NigeriaTechZenith Bank News
Onome Ohwovoriole

Onome Ohwovoriole

Onome Ohwovoriole has a degree in Economics and Statistics from the University of Benin and prior to joining Nairametrics in December 2016 as Lead Analyst had stints in Publishing, Automobile Services, Entertainment and Leadership Training. He covers companies in the Nigerian corporate space, especially those listed on the Nigerian Stock Exchange (NSE). He also has a keen interest in new frontiers like Cryptocurrencies and Fintech. In his spare time, he loves to read books on finance, fiction as well as keep up with happenings in the world of international diplomacy. You can contact him via onome.ohwovoriole@nairametrics.com

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