The Africa Report — July-August 2017

O

n the morning of 20 June

the rumours were final-

ly confirmed by a letter

from the Etisalat Group of the

United Arab Emirates, delivered

to the Abu Dhabi Securities and

Exchange Commission.

The letter, signed by Chief

financial officer Serkan Okandan,

was in the usual dry, technocrat-

ic style of financial reporting:

‘Further to our announcement

dated12February,2017,Emirates

Telecommunications Group

Company PJSC, “Etisalat Group”

would like to inform you [...]’.

But it contained an explosive

announcement. A consortium

of 13 Nigerian banks was taking

over the Etisalat Group’s local

affiliate in Nigeria, Emerging

Markets Telecommunications

Services (EMTS), which is known

as Etisalat Nigeria, after it default-

ed on a $1.2bn loan.

It was the end of an extraor-

dinary corporate journey which

had begun a decade earlier

when, in January 2007, the gov-

ernment of Nigeria awarded the

Unified Access Service Licence

to the Mubadala Development

Company of Abu Dhabi (which

owns Etisalat). Nigeria deregulat-

ed its telecoms industry in 2001.

RISE IN BAD LOANS

Anditleavesmorequestionsthan

it does answers. Many of them

centre around the management

of Etisalat Nigeria’s chairman, the

influentialNigerian businessman

Hakeem Belo-Osagie. A former

chairman of the United Bank for

Africa, through his holding com-

panies, MyaCynth and Premium

Telecommunications Holdings,

Belo-Osagie controlled a stake

in Etisalat Nigeria, alongside the

Gulf holding company.

The primary question is: how

come Etisalat Nigeria was strug-

gling? Thecompanywas believed

TELECOMS

The curious fall of Etisalat Nigeria

The fortunes of Etisalat Nigeria after it defaulted on repayment of a $1.2bn loan raise

questions on how a supposedly thriving company could have failed so spectacularly

Etisalat staff

in 2013 –

bored,

but blissfully

unaware

that the

company had

taken out

a loan that

would

cause it to

self-destruct

to have some of the highest mar-

gins in the industry, and had just

two years before made $400m by

selling towers to a local private

equity company.

Certainly, no one saw this

coming, despite the recent

economic pinch caused by the

oil price drop. Nigerian banks

have been forced to restructure

their loans to businesses across

various sectors, particularly

energy, to forestall a sharper

rise in the rate of bad loans. But

little thought was given to the

telecoms sector as the operators

were believed to be capable of

weathering the downturn.

This was why the banks did not

makeanyprovisionfortheloanto

Etisalatsays Ugo Obi-Chukwu, an

accountant and financial analyst

and founder of Nairametrics, a

leading business news blog in

Nigeria: no one anticipated that

Etisalat would be unable to meet

its obligation. “Typically banks

will take provisions when they

suspect that a borrower is going

to default, but they didn’t take

any provision [on Etisalat], none

at all. So it was quite surprising”,

says Obi-Chukwu.

Ironically,whenEtisalatNigeria

launched in 2008, analysts were

queuinguptopredictitsdownfall.

Itscompetitors–thelikesofMTN,

Airtel and Globacom – had been

operating for a number of years

beforeitcameontothescene.The

market had effectively coalesced

around these three operators,

who had built out vast networks

across the country and deployed

various strategies to acquire and

maintain a share of the market.

It was thought that Etisalat had

little chance of becoming a major

player in the industry.

But the experts turned out to

be wrong. Etisalat performed

remarkably well following its

launch in October 2008, and

went on to reach the milestone

of 1 million subscribers just eight

months later.

Fuelled by the expertise of its

foreign parent and the savvy of its

chairman, Etisalat grew at rocket

speed and soon became recog-

nised as the operator with the

best quality of service in Nigeria.

Belo-Osagiehadrecruitedastellar

teamledbyStevenEvans,aformer

CEO of the UK’s BT Mobile.

TRAWLER EFFECT

Over the following years, as rival

smaller operators folded Etisalat

snapped up their subscribers. By

2011,thecompanyhad12million

subscribers, cementing its status

as the fourth largest operator.

64 BUSINESS| COMPANIES & MARKETS