MTNN- Nigeria’s largest telecoms financing


On 18th November 2003, MTN Nigeria Communications Ltd (MTNN) closed US$395 million of debt financing to facilitate the roll out of its GSM network in Nigeria.

Outside the oil industry, this is the largest ever project financing in Nigeria and the largest non natural resources financing in sub-Saharan Africa.

At the time of closure, Adrian Wood, MTN Nigeria’s Managing Director said, "The success of the transaction reflects financial market support for Nigeria". Certainly, in a country with a population of 120 million, Nigeria has the potential to become the biggest cellular market in Africa.

Background

MTNN was successful in winning one of four digital mobile licences to operate a GSM network in Nigeria, auctioned by the Nigeria Communications Commission ("NCC") in Abuja in January 2001. A licence fee of US$285 million was paid to the NCC. The company’s 15-year licence was issued on February 9, 2001, as were the required GSM frequencies.

MTNN secured 12-month bridge financing in the form of a commercial paper facility at the beginning of 2002 which was extended and increased to around US$170 million in 2003. The bridge financing was provided by a syndicate of seven local banks, all of whom have subsequently participated in the US$395 million financing. The bridge financing was refinanced out of first drawdown under the US$395 million financing.

The local element of the US$395 million financing was originally intended to total US$210 million but interest among local banks and financial institutions was such that the local lenders’ facility was substantially oversubscribed with total commitments in the region of US$320 million. Consequently, MTNN decided to revise the financing package and increase the local lenders’ facility to US$250 million.

Project Sponsors

Founded in 1994, MTN Group is a provider of telecommunications services in South Africa and in several other African countries. Its South African GSM network - one of the largest national networks in the world - has over 4,000 sites covering 19,200 kilometres of roads, 900 000 square kilometres of land and 94.5 per cent of South Africa’s population. MTN Group had close to 8 million subscribers as of 30 September 2003.

Investments outside South Africa are held through MTN International (Pty) Ltd and MTN International (Mauritius) Limited (MTNI), wholly-owned subsidiaries which have interests in MTNN (c.79.5%), MTN Uganda (52%), Rwandacell (31%), MTN Cameroon (70%) and MTN Swaziland (30%).

Financing Structure

The financing package is split into senior secured pari passu facilities as follows:

Nigerian Naira 33.13 billion (US$250 million), 3 year note issuance facility provided by local Nigerian lenders led by Nigeria International Bank and Stanbic Bank Nigeria US$40 million, 4.25 year term facilities provided by Standard Corporate and Merchant Bank (SCMB) with the benefit of partial political risk insurance from ECIC (the South African export credit agency) US$35 million, 6.25 year term facility provided by the International Finance Corporation (IFC); US$20 million, 6.25 year term facility provided by the Dutch and German development finance institutions (DFI), Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden N.V. (FMO) – the Netherlands Development Finance Company; and Deutsche Investitions - und Entwicklungsgesellschaft mbH (DEG) US$50 million, 7-year standby facility provided by IFC.

The individual facilities described in paragraphs (a) and (d) above are available from the date on which all conditions precedent to first utilisation under the common terms agreement have been satisfied.

The IFC standby facility described in (e) will first become available for drawing (subject to certain conditions) three years from the date of signing of the local lenders’ facility, i.e. the first rollover date with respect to the local lenders’ facility.

The purpose of the IFC standby facility is to step in and cover that amount (up to US$50 million) of the local lenders’ facility which cannot be rolled-over for "project-external" reasons (i.e. other than deterioration/potential deterioration of MTNN’s credit).

Legal Structure

The transaction involved several notable elements:

Firstly, the financing package involved five senior secured pari passu facilities provided by financial institutions with differing interests, cultures and requirements which resulted in complex and challenging negotiations in order to achieve intercreditor arrangements satisfactory to all parties.

Secondly, by agreeing to make their commitments available for a minimum of 3 years the local lenders have committed to a tenor of unprecedented length by the standards of the local market.

Thirdly, a security package has been provided comprising (i) fixed and floating charges over the onshore and offshore assets of MTNN, (ii) share security given by MTNI with respect to all of its ordinary shares in MTNN from time to time and assignments by way of security of the benefit of shareholder loans made by all shareholders in MTNN (including the local shareholders).

Fourthly, the deal included a complex limited shareholder support structure involving holding companies in Mauritius and South Africa.

Fifthly, international support for this investment has been aided by the involvement of IFC.

Figure 1 The Contractual Structure

 

 

 

 

 

 

 

 

 

 

 

 

 

Risks and how they were mitigated

The importance of local market support to the success of this transaction and, in particular the unprecedented tenor of their commitments, cannot be underestimated as this has helped to mitigate the currency risks faced by hard currency lenders lending to a borrower with predominantly local currency revenue. In addition the involvement of IFC and the two DFI’s, DEG and FMO, has given an investment of this nature the political support necessary to ensure participation of international lenders. Finally, the only commercial lender, SCMB, had the benefit of partial political risk cover from the South African ECA, ECIC.

Not surprisingly, given the wide variety of lenders participating, the intercreditor negotiations were demanding and resulted in a complex and intercreditor agreement that was designed to satisfy the highly variable concerns and requirements of the different lender groups. Nick Caffarate of Norton Rose said, "The varying interests and cultures of the participating lenders lent an inherent degree of complexity to the intercreditor arrangements. However, this meant that the negotiations between the parties were always interesting and added to the sense of achievement when agreement was finally reached."

The security package comprised a mix of fixed and floating security over the onshore and offshore assets of MTNN as well as third party security. "As with all transactions of this nature, MTNN’s digital mobile licence is its most valuable asset" said Matthew Escritt also of Norton Rose. The risk lenders always face is that the licensing authority, in this case the NCC, will seek to revoke the licence following an enforcement of the lenders’ facilities. This risk was mitigated by obtaining a "letter of no objection" from the NCC which provided that the NCC had no objection to the licence being charged in favour of the lenders and that following an enforcement, the NCC would consider an application for the transfer of the licence or a change in the shareholding structure of MTNN provided that any proposed transferee had sufficient experience as a mobile operator.

MTNI, the majority shareholder in MTNN incorporated in Mauritius, agreed to enter into a limited recourse shareholder support structure documented by means of a shareholder support deed. Recourse to MTNI is limited both in time and in amount; the amount of such support is linked (and limited to) the amount of technical, consultancy or similar fees that have been paid by MTNN to MTNI under certain technical services agreements. Crucially for the international lenders, Mobile Telephone Networks Holdings (Proprietary) Limited, the South African parent of MTNI, also agreed to stand behind the financial obligations assumed by MTNI under the limited shareholder support structure until such time as agreed financial strength indicators show that MTNI has sufficient resources to perform these obligations by itself.

Conclusion

According to the parties involved in the deal, key to the success of this transaction was the extensive local funding support which helped reduce the currency risks inherent in projects of this nature.

In addition the involvement of development finance institutions, in particular IFC and export credit agencies in the form of ECIC gave the project the necessary political support to attract the necessary international investment.

The transaction clearly reflects welcomed financial support for both Nigeria and its telecommunications market, which is forecast to grow to around 10 million consumers over the next decade and which has the potential to become the biggest cellular market in Africa.

Figure 2: Project Information Summary

Primary Sponsor

MTN International (Mauritius) Limited

Borrower

MTN Nigeria Communications Limited

Total Project Funding

c. US$800 million

Project Debt

US$395 million

Lead Advisors & Arrangers

Standard Bank London & Citigroup

Borrower International Counsel

Freshfields Bruckhaus Deringer

Borrower Local Counsel

Aluko-Oyebode

Lender International Counsel

Norton Rose

Lender Local Counsel

Udo Udoma & Belo-Osagie