MTN’s $10bn claims from Nigeria ‘could threaten South African economy’, bank warns

09 November 2018 | Alan Burkitt-Gray

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The $10 billion dispute between MTN and the Nigerian government is a risk to the group and the South African economy, South Africa’s central bank said yesterday.

The South African Reserve Bank (Sarb) warned in its latest financial stability review that if the MTN group is forced to pay the sums Nigeria says it owes, that will harm MTN’s “ability to continue meeting its debt obligations, including those in the South African banking sector”.

MTN is facing two demands from Nigeria. First, in August the Central Bank of Nigeria told the telecoms company to repatriate $8.1 billion that it had taken out of the country with “irregular capital importation certificates issued over the period 2007 to 2015”.

Secondly, in September the office of Nigeria’s attorney general told MTN it “to recover $2 billion of taxes relating to the importation of foreign equipment and payments to foreign suppliers since 2008”.

Sarb noted in its stability report yesterday that the total, – more than $10 billion – is approximately equal to 100% of MTN’s total market capitalisation.

Essentially, says Sarb, MTN would not be able to pay the sums Nigeria is demanding. It focuses on the impact to the banking sector and MTN’s ability to make its interest payments – particularly to Stanbic, the Standard Bank subsidiary that is MTN’s main lender. But Sarb warns of a potentially increased systemic risk, “given the interconnected nature of the financial system”.

But Sarb also touches on the potential impact on the MTN group. “A potential worst-case scenario would be for the MTN Group to disinvest from Nigeria as a result of this event,” it warns. That would “would increase the MTN Group’s exposure level to reputational risk”.

Sarb notes: “The event highlights the importance of market conduct for financial stability and, specifically, finding a balance between sustaining systemic stability (including maintaining the safety and soundness of financial institutions) and enforcing measured wholesale market conduct.”