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MTN Slashes Outstanding Letters of Credit Obligations by $173.2m

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MTN Slashes Outstanding Letters of Credit Obligations by $173.2m

Teleoms and digital communications company, MTN Nigeria has reduced its outstanding Letters of Credit (LC) obligation by 41.58% in the first quarter of 2024 in a bid to moderate its exposure to naira volatility against dollar.

In the outcome of its recently held Extraordinary General Meeting (EGM) filed at the Nigerian Exchange Limited ((NGX), MTN disclosed that its LC which stood at $416.6 million as at December 31, 2023 had reduced to $243.4 million by the end of March, this year.

A Letter of Credit is a contractual commitment by the foreign buyer’s bank to pay once the exporter ships the goods and presents the required documentation to the exporter’s bank as proof. As a trade finance tool, Letters of Credit are designed to protect both exporters and importers.

The constant depreciation of Nigerian currency, naira, against the US dollar has subjected many companies that are import dependent and or have loan obligations in foreign terms to massive losses since the government floated exchange rate of naira since June 14, 2023.

The naira depreciated to an all-time low of N1,627/$ at the Nigerian Autonomous Foreign Exchange Market (NAFEM) in March, from N907/US$ at the end of December 2023, before moderating to N1,309/US$ by the end of the quarter.

Having ascribed its first quarter’s negative closing of N575.691 billion pre-tax losses chiefly to forex exchange losses which soared to N656.4 billion in the quarter, MTN has charted plans to contain the situation.

Part of the plan is to focus on reducing various exposures the business has to dollar volatility.

It said: “One key area is the Company’s outstanding letters of credit (LC) obligations, which contribute to the volatility in its earnings through FX losses reported in the Company’s income statement. These obligations were incurred in support of capex requirements which are largely foreign currency denominated.

“In this regard, the Company has utilised the improved liquidity in the FX market to reduce the balance of outstanding LC obligations to $243.4 million as at 31 March 2024, from $416.6 million as at 31 December 2023.

“This was funded using restricted cash balances held in Naira to support LC obligations. As CAPEX is optimised, these balances will be minimised and the Company will continue to deploy resources to reduce these US$ obligation exposures.”

Recovery and Growth plan Unveiled

Part of MTN’s plan to surmount its financial problems and return to profitability include engagement with the authorities, through the industry body, on tariff increase to manage the effects of the challenging operating conditions.

Its noted that appropriate tariff increases will be necessary to support continued investment and the long-term sustainability of the industry, adding that this will support commercial interventions to accelerate its topline growth.

MTN is also looking to Drive margin recovery by focusing on initiatives to accelerate revenue growth and improve operational efficiency, with a disciplined focus on the Company’s expense efficiency programme and value-based capex allocation.

Since it has decided to lower it CAPEX-driven Letters of Credit, the telecoms giant is working to optimise its investments infrastructure in recent years.

It said: “With consistent and extensive investment in MTN Nigeria’s network over the past few years, including the acquisition of additional spectrum, there is flexibility to optimise capex deployment.

“In this regard, CAPEX will be reduced (excluding leases) for full year 2024 and aim for a capex intensity in the upper single digits.

“The Company will optimise latent capacity and implement radio planning strategies to minimise potential impacts and disruptions to MTN’s network quality. This will ensure that the Company continues to provide its customers with reliable connectivity and support its growth ambitions.”

In addition to this, the company is considering strategic options to manage its tower lease contracts.

As previously reported, it affirmed that constructive discussions are on with key towerco service providers regarding changes to the existing tower lease contracts.

If successful, these negotiations could result in improvements that will help the Company to mitigate macro risks impacting its business, including FX.

It noted that this would supplement the aforementioned initiatives to accelerate the recovery profile of the Company’s earnings and restore its net asset position faster.

It however noted that if the discussions do not yield the desired outcomes, the business will continue to drive the operational and commercial strategies outlined. MTN Nigeria believes the strategies will enable the Company to improve its profitability and trade out of the negative net asset position over time

As disclosed in its full-year 2023 audited financial statements published in February this year, MTN Nigeria reported negative retained earnings and net asset position of N208 billion and N40.8 billion, respectively.

This was mainly driven by the net foreign exchange losses of N740 billion reported in the period (85.9% of which was unrealised), as well as higher net forex losses from prior years, which were restated higher by N25.6 billion.

Nonetheless, MTN restated commitment to continue to evaluate the conditions and developments in its operating environment and evolve its approach to address the negative capital position as required.

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