MTN Slumps on Return of Iran Troubles and Surge in Net Debt

(Bloomberg) -- MTN Group Ltd. warned that renewed U.S.-led economic sanctions against Iran had once again tied up funds in its second-biggest market, scuppering plans to turn the country into a cash cow after years of troubles.

The South African company repatriated almost $1 billion from the country in 2017 after the lifting of a previous round of restrictions, and had embarked on a $750 million plan to extend fiber-to-home broadband connections to the country’s cities. That project is now on hold, and the difficulties taking out cash have returned.

“We have discounted any cash flows from Iran for the next three years,” Chief Financial Officer Ralph Mupita said at a presentation in Johannesburg on Wednesday. The company had 44.5 million customers in the country at the end of 2017, compared with more than 223 million across all its 22 markets.

MTN joins a host of international companies forced to tear up their Iran polices as a result of President Donald Trump’s decision to walk back from a 2015 nuclear agreement. Daimler AG, the German maker of Mercedes-Benz, said Tuesday it will freeze operations in Iran, including a plan to make trucks, while Airbus SE has delivered only a small portion of the 100 aircraft it agreed to send before sanctions were reestablished.

MTN shares slumped 7.1 percent to 105.99 rand as of 3:14 p.m. in Johannesburg, the most in more than a year, extending a decline for the year to 22 percent.

Of further concern was net debt, which the company said in a statement increased to 69.8 billion rand ($5.2 billion) as of the end of June, compared with 57.1 billion rand at the end of 2017. That was partly caused by a higher final dividend paid last year, although that will be lower in 2018 in line with a new policy outlined in March.

“The debt levels are high,” Peter Takaendesa, an analyst at Mergence Investment Managers, said by phone from Cape Town. “I hope they will address that with the 260 million euros ($302 million) they made from Cyprus,” he added, referring to the recent disposal of MTN’s smallest business.

Proceeds from the Cyprus sale would indeed be used to reduce debt, as well as cash raised from the initial public offering of the Ghana unit, Chief Executive Officer Rob Shuter said by phone.

Ethiopia Opportunity

MTN is reviewing its portfolio across the Middle East and Africa even after selling the Cyprus business. The examination is ongoing, with conflict markets including Syria and South Sudan under scrutiny. As well as disposals, MTN is keen to enter new markets such as Angola and Ethiopia -- which have both recently indicated they are open to foreign investors. The company expected to renew its Uganda license next week, Shuter said.

“We want to be number one or two in the markets that we are operating in,” he said. “We need a decent regulatory environment to operate in. All war-torn areas will always be under review.”

MTN’s subscriber numbers increased by 2.8 percent to 223.4 million as of end June, while headline earnings per share declined to 2.15 rand from 2.31 rand. The Earnings before interest, taxes, depreciation and amortization margin is expected to widen over the next few years and service revenue will increase by upper-single-digit percentage points, it said.

MTN reiterated a pledge to increase dividends by as much as 20 percent a year over the medium term. The full-year payout to shareholders will be 5 rand a share in 2018, compared with 7 rand last year, the company said.

©2018 Bloomberg L.P.