MTN Records US$102,365 billion In Forex Losses
MTN Nigeria has experienced significant financial strain as a result of the continued depreciation of the naira, reporting a net foreign exchange loss of $4,810, million in Q1 2024, contributing to a record high forex loss of $102,363 billion since 2023.
In response to ongoing US dollar volatility, MTN Nigeria is reducing its dollar-denominated liabilities and reassessing costly tower lease contracts, aiming to align these expenses more closely with its naira earnings.
As part of a broader strategy to stabilize its financials, MTN is lobbying for regulated tariff increases, reducing capital expenditures, and negotiating terms with lenders to manage the impacts of currency devaluation and bolster its economic resilience.
MTN Nigeria reported a net foreign exchange loss of $480,879 million in the first quarter of 2024 as a continuation of the naira’s depreciation ravaged the company’s balance sheet. MTN’s foreign exchange loss since 2023 has now risen to a staggering $102,363 billion, the largest on record for any publicly quoted company in the country.
MTN recorded the most forex losses in 2023, when it reported a forex loss of $542,506 million based on information in its audited accounts. The losses have now resulted in the company’s shareholder’s fund falling to a negative $320,425 million, with accumulated losses now $439,216 million.
MTN’s forex losses were expected in 2024 after the exchange rate depreciation continued in the first quarter of the year. As of 2023, the exchange rate used by MTN was about $1. However, it worsened by the end of the third quarter, depreciating to about $1.
This contributed to the company reporting a pre-tax loss of $421,929 million. According to information contained in its 2024 Q1 results, the current foreign exchange rate loss was $509,144 million while the exchange rate gain was just $28,834 million.
However, the actual realized exchange rate loss was $131,488 million, while the unrealized portion was $349,513 million. Included in the realized loss (which are not actual losses but on paper) includes losses due to borrowing of $107,899, million and trade payables of $27,927 million.
In response to these challenges, MTN Nigeria is actively pursuing strategies to reduce its exposure to US dollar volatility. One significant measure is the reduction of outstanding letters of credit obligations, which are largely tied to the company’s capital expenditure needs in foreign currencies.
“We are focused on reducing the various exposures our business has to US dollar volatility. One key area is the company’s outstanding letters of credit (LC) obligations, which contribute to the volatility in our earnings through FX losses reported in our income statement. These obligations were raised in support of our capex requirements, which are largely foreign currency denominated.”
By the end of March 2024, the company had managed to lower these obligations to US$243.4 million from US$416.6 million at the end of December 2023.
According to the company, the reduction was facilitated by utilizing restricted cash balances held in naira. Additionally, MTN is reassessing its tower lease contracts, which are predominantly denominated in dollars, a factor that contributes to financial strain amid fluctuating exchange rates.
“We are considering strategic options to manage our tower lease contracts. As previously reported, we are engaged in constructive discussions with key towerco service providers regarding changes to the existing tower lease contracts.
“If successful, these negotiations could result in improvements that will help us to mitigate macro risks impacting our business, including FX. This would supplement our aforementioned initiatives to accelerate the recovery profile of our earnings and restore our net asset position faster.”
There are growing pressures from some shareholders to convert these leases into naira-denominated contracts to better align with the functional currency of the company.
Tower leases contributed approximately 50% of its foreign exchange losses in 2023, and in the first quarter of this year, they contributed $212,058 million or 44% of net foreign exchange losses.
MTN Nigeria outlined a multifaceted strategy aimed at sustaining its commercial momentum and enhancing profitability. This strategy includes regulated tariff increases, which MTN views as crucial for maintaining its investment levels and ensuring the long-term viability of the industry.
In response to these economic pressures, MTN has implemented several key initiatives. For example, it said it is in discussions with regulatory bodies through its industry association to adjust tariffs appropriately.
These increases are deemed necessary to counter adverse operating conditions and are expected to support MTN’s efforts to accelerate revenue growth.
MTN also said it is focused on driving revenue growth and operational efficiency. This involves an expense efficiency program and a strategic approach to capital expenditure, prioritizing investments that offer the most value.
On Capex, it plans to reduce its capital expenditure for 2024, aiming for an intensity in the upper single digits. The company intends to make strategic adjustments to optimize its network capacity and minimize disruptions, ensuring reliable service delivery to its customers and supporting its growth objectives.
On debt, MTN Nigeria said it has secured the required accommodations from its lenders concerning any impacts on loan agreements due to the restatement of financial statements.
Additionally, accommodations have been established relating to any potential breaches of covenants that may arise from significant currency devaluation and the resultant negative net asset position. These measures it claims will enable MTN to persist in executing its strategic plans and implementing the outlined interventions.
