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$1bn Fine: MTN To Raise Funds Through Bonds

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Africa’s biggest mobile phone company, MTN Group Ltd, plans to gauge investor interest in a possible bond offering as it seeks funds to pay for dividends, capital expenditure and a record N330 billion ($1 billion) fine in Nigeria.

The wireless operator has mandated Barclays Bank Plc, Bank of America Corp, Merrill Lynch, Citigroup Inc and Standard Bank Group Ltd to arrange a series of fixed-income investor meetings in the U.S. and the U.K. starting on September 9, the Johannesburg-based company said in a statement yesterday.

The dollar-denominated bond offering “is expected to follow subject to market conditions,” the carrier said.

MTN’s move to attract funding comes after the company reported its first-ever half-year loss this month, partly caused by an agreement to settle the fine with Nigerian regulators and government. The subscriber base of 233 million did not grow during the six months through June, while MTN is struggling to repatriate 15.4 billion rand ($1.1 billion) tied up in its Iran unit.

“Pre-dividend free cash flow won’t cover payments of dividends and the fine in Nigeria this year and in 2017,” Alexandre Dray, an emerging-markets credit analyst at Gimme Credit LLC in Tel Aviv, said in e-mailed comments. “Therefore, the company needs to raise new debt or equity to keep a comfortable liquidity position.”

MTN issued a $750 million note in 2014 that matures in 2024, according to data compiled by Bloomberg. The company sold a 1.25 billion rand bond in 2010 which matures in July next year.

After reaching a record high in February, the yield on MTN’s dollar-denominated note has fallen as the carrier negotiated and finally successfully settled talks over its Nigerian fine. Having peaked at 7.11 per cent on February 19, the note’s yield is now 4.81 per cent and its spread to a similarly dated Treasury Bill has narrowed.

MTN is due to pay an outstanding N280 billion of the Nigerian fine in six installments over the next three years. The first payment, which MTN Nigeria said it had already settled, was due on July 8.

“The net proceeds of the issue of the notes will be used for capital expenditure, to pay for working capital facilities and general corporate purposes,” MTN said in a preliminary prospectus sent to potential investors.

“We expect our annual capital expenditure in the medium term to increase in the coming years as we increase our capital expenditure in Nigeria and South Africa.”

The shares fell two per cent to 118.34 rand as of 3:40 pm in Johannesburg, on track to close at the lowest price since January 21. They have declined about 38 per cent since October 26, when the Nigeria fine was first reported.

The wireless carrier will consider a higher full-year dividend than the forecast 7 rand-a-share “if operating conditions improve materially,” the company said August 5.

MTN paid 13.10 rand a share in 2015, while the pay-out was set at 2.50 rand for the half year through June.

The company “is right to consider issuing bonds so as to make the most of the low-yield environment,” Dray said. “This is a good time to sell bonds as there is a strong demand for emerging-market corporates amid a hunt for yield.”

Meanwhile, MTN Group and MMI Holdings, an insurance-based financial services player, yesterday said they are launching a micro insurance joint venture, branded aYo, which would be available to all MTN subscribers across Nigeria and in 21 other countries where it operates.

The joint venture will benefit from the scale, combined expertise and market access of both companies, to provide a strong basis to compete in a changing mobile financial services industry. The joint venture will have a strong focus on delivering micro insurance solutions across the African continent

Insurance penetration is low in many countries across Africa, and utilising the resources and capabilities that each of MMI Holdings and MTN provide, aYo will be able to improve this to offer relevant, accessible and easy to use insurance solutions to consumers.

The group chief digital officer of MTN, Herman Singh, speaking on the partnership, said that “this partnership gives us an opportunity to further expand our bouquet of mobile financial services offerings across our footprint. Working with MMI, and harnessing the rapid growth of mobile on the continent, we will be able to leverage our core competencies, strong brands and scale to deliver much-needed insurance solutions to our customers.”

The group chief operating officer of MMI Holdings, Danie Botes, remarked that “the partnership with MTN will create new revenue streams for MMI, help achieve significant scale, explore opportunities in new markets and segments, and capitalise on the growth of micro insurance on the continent.

“The partnership will also allow us to further extend our client-centric vision of financial wellness across the Africa continent” he said.

The aYo offering will be rolled out in a number of African countries from the end of 2016

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