MTN plunged nearly 8 percent on Wednesday as its high debt and offshore woes rattled the markets, despite the group increasing its subscriber base by 6 million heads in the six months ended June.
The group’s net debt increased to R69.8 billion in the period under review, compared with R57.1bn at the end of last year.
The group said the surge in debt was due to the weaker closing rand and the payment of the final dividend under the previous dividend policy.
MTN’s forex linked losses amounted to R600 million in the period under review.
Chief financial officer Ralph Mupita said the group expects an improvement in cash flows in the second half of the year.
“We expect stronger business performance from the operations to contribute to this.
“The dividends and loan repayments from key markets such as South Africa and Nigeria, proceeds from the sale of the Cyprus business and proceeds from initial public offerings (IPOs) to also contribute,” Mupita said.
The company in May launched the IPO of MTN Ghana and said it expects to list, subject to final regulatory approvals next month.
The group said it had “made good progress” on its plans to list in Nigeria, but could not commit to time frames with chief executive Rob Shuter merely saying it was “complex”.
The company disposed of its Cyprus business for approximately €260m (R4.03bn).
Jordan Weir, a trader at Citadel, said the negative market reaction to the company’s interim results was largely due to the firm’s rising debt situation.
US sanctions “This negative was coupled with the challenge it is facing repatriating money from IranCell, due to US sanctions being placed on Iran again by Donald Trump.
Exchange rate volatility and softer revenue streams coming out of Nigeria were highlighted,” Weir said.
The group’s future cash flow would also come under pressure owing to the US decision to withdraw the Joint Comprehensive Plan of Action with Iran.
The decision saw the US re-impose economic sanctions on the country.
The first round of sanctions came into effect this month and the second round will come into effect in November. Dobek Pater, from Africa Analysis, said MTN’s drawback in Iran is the depreciating local currency.
“Apart from the currency issue, Iran has demonstrated good growth. “I don’t know what contributed to the declining customer numbers in Cameroon, but I expect that this market has become increasingly competitive with the expansion of Viettel,” Pater said.
MTN said it would struggle to repatriate R3.4bn in accumulated dividends and loans from its Iran joint venture due to the US sanctions.
This is as the group reported a 7 percent decline in interim profits. “Opportunities for repatriation within the legislative framework continue to exist. However, MTN Group has not factored these into our cash flow forecasts,” Shuter said. As of the end of the period under review, the group had 223.4 million subscribers, compared to 217.2 million at the end of 2017.
The company spent R11.4bn in capital expenditure in the period, rolling out a total of 3 603 3G and 3 660 4G sites. MTN said its voice revenue increased by 6.2 percent in the period, while its data revenue surged 26.7 percent. Asief Mohamed, chief investment officer at Aeon Investment, said MTN’s interim results reflected the positive momentum of its Bright strategy.
“The decline in the headline earnings per share was mainly due to foreign exchange losses,” Mohamed said. “There remain concerns around the South African enterprise business. The internet business is at the early investment stage, so one should expect losses. Once the internet business achieves scale it could generate significant profits.”
The group declared an interim dividend of R1.75 a share and maintained its stance that it will declare a total dividend of R5 a share for 2018.