MTN, Airtel Reduce FX Debt By $867M
Telecommunication companies are reducing their foreign exchange exposures as the naira’s steep decline continues to drive substantial financial losses despite strong revenue growth.
In the first half (H1) of 2024, MTN Nigeria Communications Plc and Airtel Africa Plc reduced their combined FX exposures to $100 million from $966.6 million reported by December 2023. This represents an FX debt reduction of $966.6 million.
According to the telcos, this reduction is crucial for mitigating the losses incurred due to currency volatility.
The Central Bank of Nigeria’s (CBN) decision to unify the country’s foreign exchange market in June 2023 caused the naira to depreciate from N471/$ before the move to N1,384/$ by June 2024. This depreciation wiped out the N563.20 billion revenue gains reported by MTN and Airtel in the first half of 2024.
MTN, Nigeria’s largest telco by subscription numbers, saw its revenue increase by 32.83 percent to N1.54 trillion in H1 2024 from N1.16 trillion in H1 2023.
However, the company recorded a loss after tax of N519.1 billion. Similarly, Airtel Nigeria, a subsidiary of Airtel Africa, reported a 35.29 percent increase in naira revenue to N700.90 billion in H1 2024 from N518.08 billion in H1 2023. Despite this growth, the company’s dollar-denominated revenue fell to $522 million from $1.07 billion over the one-year period.
According to the GSMA, the global telecom industry body, the financial performance of the mobile industry in Nigeria has slowed down in recent years after a long period of sustained growth.
“Both MTN and Airtel have declared significant foreign exchange (FX) losses in Nigeria, and the stress is not linked to them alone,” stated Gbenga Adebayo, chairman of the Association of Licensed Telecom Operators of Nigeria (ALTON).
To combat these FX losses amid rising revenue, MTN and Airtel have taken steps to reduce their foreign exposures. In H1 2024, MTN reduced its outstanding letters of credit (LC) from $416.6 million as of December 2023 to $100 million.
The telco noted that while its realised forex losses amounted to N310.5 billion in H1 2024, reducing its LC has decreased the impact of future naira depreciation and attendant finance costs on its operations.
Karl Toriola, chief executive officer of MTN Nigeria, said, “We have made significant progress in reducing the outstanding letters of credit (LC) US$ obligations, which contribute to the volatility in our earnings through forex losses.
“On the back of our capex optimisation and improved forex liquidity in the market, we reduced the balance of outstanding LC obligations ahead of plan to approximately US$100 million as at the end of June 2024. This was down from the US$416.6 million reported as at December 2023 and funded through the restricted cash balances held in naira to support the LC obligations.”
Airtel Africa, the parent company of Airtel Nigeria, has also cleared external debt at the holding level, which was exposing it to currency fluctuations. The telco said it repaid the 5.35 percent guaranteed senior notes maturing in May 2024.
“This bond repayment of $550m was made exclusively out of the cash reserves at the HoldCo and is a continuation of its strategy to reduce external foreign currency debt,” it said.
At its IPO in June 2019, Airtel Africa had $2.72 billion in external debt at its HoldCo, which resulted in significant exposure to currency fluctuations.
However, its result for the period ending June 2024 declared that it has “now reached the significant milestone of a zero-debt position at HoldCo” after paying off the $550 million.
Sunil Taldar, chief executive officer of Airtel Africa plc, said, “During the quarter, we fully repaid the outstanding debt due at the HoldCo, and we remain committed to further reduce foreign currency exposure across the Group to limit the impact of currency devaluation on our business. The growth opportunity across our markets remains compelling, and we continue to focus on margin improvement as indicated in our FY’24 results.”
The telco’s profit after tax was $31 million in the quarter ended 30 June 2024, primarily impacted by the $80 million of exceptional derivative and foreign exchange losses (net of tax) and lower EBITDA due to significant currency devaluation across key markets.
Both telcos noted improved liquidity in the FX market despite economic headwinds. “We are encouraged by the improving liquidity in the forex market during the period, which enabled us to reduce our exposure to foreign currency-denominated obligations,” Toriola of MTN said.
The CBN reported that FX inflows into Nigeria jumped by 57 percent to $8.86 billion in February 2024 from $5.66 billion in the same period in 2023. However, the telecom industry’s reliance on FX will persist.
“The telecoms industry, like many others in the country, is heavily reliant on FX for the procurement of essential equipment, infrastructure, and technology,” said Roseline Ogundokun, a lecturer at Landmark University’s Department of Computer Science.
To address this, telcos are adopting other cost-saving measures, such as seeking local alternatives for some of their solutions. Telcos are now actively engaging with homegrown tech businesses, developing solutions to meet their needs.
However, a senior manager at one of the telcos noted that some costs are still FX-dependent, and bulk payments are now being used to manage these expenses. “It is also risky. The FX market could get lower than when we committed,” the manager said.
Despite these efforts, industry analysts point out that the telecom sector’s overall financial performance in recent years has not been sufficient to support the capital-intensive nature of the business.
“Revenue in Naira has stopped growing as the number of subscribers has increased. Falls in average revenue per user (ARPUs) indicate pressure on prices and reductions in average usage. Operating costs have increased significantly in the recent period,” GSMA said.