MTN, which in the past has invested in markets where angels fear to tread, is signalling a sea change regarding its strategy of risk mitigation.
Africa's largest mobile network operator is pursuing its plan to leave the Middle East, where most of its subsidiaries are operating under war conditions, and is making major progress in reducing debt and looking to capitalise on the unbundling of its interests in strong infrastructure assets and other non-core asset sales.
Ralph Mupita, group CEO since September last year, said a key future focus will be on unlocking value for investors through possible sale and lease-back agreements in its South African towers portfolio, potentially realising the value of its 30% interest in emerging-markets-focused towers group IHS, or opening up its massive African fibre network for third parties to access.
As part of its fintech expansion strategy, MTN this week announced an alliance with Sanlam to offer insurance, savings and investment products to MTN customers.
"We need to change that view of the market [that MTN has a high-risk investment model] and we can only change it by how we execute," said Mupita. "We are about delivering growth, deleveraging and revealing value in our infrastructure assets and our platforms, particularly fintech, and we are going to do it in a very risk-mitigated way, focused on getting the best returns for investors and broader stakeholders."
Mupita, who was speaking after the release of results for the six months ended June 30 2021, said the company would continue to look at expansion opportunities in its core African market. However, the group is "very happy" in the 17 African countries in which it operates and will only move into markets that offer a good risk and return balance.
We can only change
— Ralph Mupita
[the market’s view]
by how we execute
CEO of MTN Group
Peter Takaendesa, head of equities at Mergence Investment Managers, said that "to sum it up, MTN is executing well and they are doing the right thing strategically".
But MTN needs to "be very careful, even now as they change their focus to narrow it down to Africa", to ensure they don't "repeat mistakes made in the Middle East where you get into a country where there are major geopolitical issues and end up being locked in that country".
"It doesn't matter how attractive it is, if you can't get cash out of the market, and sanctions come through [as they have in Iran, where MTN is also invested], then you are just wasting your time," said Takaendesa.
Exiting the Middle East has presented significant obstacles. Mupita said the group had been forced to "abandon its operations" in war-ravaged Syria, as the situation there was "intolerable". The group would book a R4.7bn "accounting loss" for the deconsolidated MTN Syria subsidiary and may later seek redress in the international court system after it lost control of its Syrian operations when MTN Syria was placed under "judicial guardianship" by the government.
Mupita said the group was proceeding with plans to exit Afghanistan and Yemen and wanted to make sure things proceeded differently in those countries. Exiting Iran, where MTN has a minority interest in an operation with 50-million subscribers, would take place over the long term as part of the second phase of its withdrawal.
He said "the reality is that Syria, Yemen and Afghanistan are in war conditions", making it really "difficult to operate in these environments".
Mupita confirmed the group had cash "trapped" in Iran because of sanctions imposed on the country by the US, but said if geopolitical relations between the two countries improved in the medium term the company would "find ourselves in a place where we can take out quite mature value that is stored in that country".
MTN managed to deliver a strong performance overall as Middle East operations only account for about 3% of group service revenue. For the six months to June, MTN reported a 19.7% increase in group service revenue to R81.9bn, underpinned byrevenue growth in SA, and particularly in Ghana and Nigeria. Group headline earnings per share fell 10% to R3.87, but this included once-off items such as Covid-related donations to the AU and Nigeria. Without these items, adjusted headline earnings per share rose 31.5%.
The company said it reduced its debt to R36.7bn from R43.3bn. This was boosted by cash inflows received from its operating companies of R9.3bn , which included R4bn in dividends from Nigeria, as well as R1.8bn in proceeds from the sale of MTN's stake in Belgacom International Carrier Services. The group also received a further R2.3bn in dividends from Nigeria post the results period.
Protea Capital Management analyst Richard Cheesman said the "cash upstreaming" from Nigeria was "very positive" as MTN Nigeria had experienced foreign exchange challenges in the past that made it difficult at times for proceeds to flow from that country.
Cheesman said that under Mupita, MTN had done well in addressing the problem of ensuring that dividends from other territories flowed to the holding company. But he would like to see MTN "realise the enormous value" from its 30% interest in IHS. MTN had valued this stake at R30bn, which was a "substantial asset" and more than 10% of its R200bn market capitalisation.
Mupita agreed there is major value in IHS, saying that if the group were able to realise it either through a listing or sale, it would "almost in one fell swoop extinguish our debt".
However, he said the decision to list the business remains with IHS, but if "one looks at US markets and the demand for infrastructure assets, this period now is very conducive [for a listing]".
He said the group is also busy looking at sale and lease-back deals regarding 5,700 of the 12,800 towers in its towers portfolio in SA. "Bids have been received and we're now reviewing."
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