The Johannesburg-based company said in a statement on Wednesday that it has mandated Barclays Bank Plc, Bank of America Corp.’s Merrill Lynch, Citigroup Inc. and Standard Bank Group Ltd. to arrange a series of fixed-income investor meetings in the US and the UK starting from tomorrow (Friday, September 9) to gauge investor interest in a possible bond offering as it seeks funds to pay for dividends, capital expenditure and a record $1 billion (N330 billion) fine in Nigeria.
“The net proceeds of the issue of the notes will be used for capital expenditures, to pay down 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 expenditures in Nigeria and South Africa.”
The dollar-denominated bond offering “is expected to follow, subject to market conditions,” the mobile 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 didn’t 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 instalments over the next three years. The first payment, which MTN Nigeria says it has already settled, was due on July 8.
The shares fell 2 per cent to 118.34 rand as of 3:40pm 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 NCC 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 on August 5. MTN paid 13.10 rand a share in 2015, while the payout was set at 2.50 rand for the half-year through June.
The company “is right to consider issuing bonds 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.”
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