MTN Group’s biggest shareholder is pushing for changes at Africa’s largest mobile-phone company to avoid the regulatory, legal and political disputes that have cut its share price by more than half over the past four years.
The Public Investment Corporation (PIC) built a 26% stake in Johannesburg-based MTN by late November and used that to call for the replacement of Chairman Phuthuma Nhleko, people familiar with the matter said. Africa’s biggest fund manager, which is South African state owned, also sent a letter to MTN demanding a board reorganisation, said one of the people. That resulted in the appointment of more politically connected directors.
Last month, the carrier obliged, announcing Nhleko’s planned departure and replacement, along with other director changes and a new separate group of prominent advisers. The PIC didn't respond to a request for comment. Nhleko declined to comment.
Interactions with the PIC have been at the board level, MTN Chief Executive Officer Rob Shuter said in an interview in London last week. "An important thing for them was on our board evolution," he said. MTN’s media office didn’t comment further.
The PIC was moved to act following a series of disputes in Nigeria, Iran and elsewhere, the people said, asking not to be identified as the concerns weren’t disclosed publicly. The biggest of those was a $5.2bn fine in Nigeria in October 2015, which was eventually settled for less than $1bn after about eight months of negotiations
The PIC, which manages the pension funds of South African government workers, wants the new chairman, former South African Deputy Finance Minister Mcebisi Jonas, and the board to resolve outstanding issues such as a $2bn tax dispute in Nigeria, the people said. MTN’s separate advisory board is a council of "wise old men," who can directly contact lawmakers and decision makers in the countries where MTN operates, one of the people said.
The current board doesn't have a Nigerian director even though that country is MTN's biggest market by subscribers. From July, it will include Lamido Sanusi, a former Nigerian central bank governor who is now Emir of Kano, the second-most influential Islamic position in the west African country.
Jonas is set to take over as chairman in December, MTN said on May 3. Vincent Rague, a Kenyan International Finance Corporation veteran, is also joining.
The advisory board will be chaired by Thabo Mbeki, a former South African president who has mediated in a number of political disputes across the continent, and will include a former Ghanaian president, John Kufuor, and Mohamed Elbaradei, the one-time head of the International Atomic Energy Agency.
Nhleko, who is credited with playing a large part in building the company into a continent-wide giant with 221 million customers, will also sit on the advisory board.
A catalog of disputes in MTN’s markets, which include nations at war in the Middle East and Africa, have depressed the share price and allowed Johannesburg-based rival Vodacom Group to surpass MTN in terms of market capitalisation. Since MTN disclosed that the PIC had a 26% stake on November 29 the share price has gained 20% compared with a 6% decline for Vodacom.
Disputes include: October 2015: MTN fined $5.2bn by a Nigerian regulator for not disconnecting 5.1 million subscribers that didn’t have proper documentation. While the penalty was eventually reduced to less than $1bn it cost then-CEO Sifiso Dabengwa his job. The PIC, which held 13% of the company at the time, said the board should have taken more responsibility.
August 2018: Nigeria orders MTN and four banks to refund $8bn in dividends that it said were illegally expatriated in the eight years through 2015. The company ended up agreeing to pay $52.6m four months later.
September 2018: Nigeria’s attorney general orders MTN to pay $2bn in taxes it says are owed. The dispute is ongoing.
February 2019: South African police arrest a former ambassador to Iran on corruption charges related to the award of a mobile-phone license to MTN after it was initially given to Turkcell Iletisim Hizmetleri AS. Turkcell has been taking legal action against MTN for several years.
February 2019: The head of MTN’s business in Uganda is deported over what the government there calls a "national security matter." Three other executives were also deported. The CEO was cleared to return last week.
The PIC "need us to manage portfolio risk," MTN Chief Financial Officer Ralph Mupita said in the London interview. "As a company we operate in markets such as the Middle East and others, so how do we manage the risk that come with sanctioned markets and other issues."
Joe Ghartey, Ghana’s minister of railways development, says he has cancelled the MoU with the China Railway Construction Corporation Corporation (International) Nigeria Limited (CRCC-Nigeria) “for breach of confidentiality”.
Ghana had entered into CRCC- Nigeria for the construction and rehabilitation of a 560-kilometre standard gauge railway line.
However, after a report in TheCable comparing railway contract costs in Ghana with Nigeria’s, the minister came under pressure to do “damage control”.
In a statement sent to TheCable on Monday, Ghartey acknowledged that the ministry signed an MoU with CRCC-Nigeria.
TheCable had reported that CRCC offered to rehabilitate and construct a 560-kilometre standard gauge railway line for Ghana at $2 billion, with terminals at Aflao and Elubo.
“Messrs CRCC-Nigeria expressed interest in supporting the Ministry to develop and modernise Ghana’s railway network, particularly the Trans-ECOWAS line, which runs along the coast between Aflao, on the border with Togo, and Elubo, on the border with Cote d’Ivoire,” the statement read.
“The purpose of the MoU is for CRCC-Nigeria to undertake feasibility studies through the use of independent consultants.
“CRCC-Nigeria is responsible for verifying the project cost as estimated by the feasibility studies and also raise capital to finance the project.”
However, the minister said his ministry was yet to respond to a proposal by CRCC-Nigeria to establish assembly plants for building locomotive coaches and wagons.
The ministry was, however, silent on the 340-kilometre Eastern line project that is estimated to cost $2.2 billion which will link Accra, Tema and Kumasi,
In March, Rotimi Amaechi, Nigeria’s former minister of transportation, had told reporters that the $1.5 billion allocated for the 146-kilometer Lagos-Ibadan project has been altered due to additional construction work on the project but refused to disclose the new sum.
TheCable understands that the new cost is $2 billion — which is exactly the amount CRCC-Nigeria is offering to construct and rehabilitate the 560-kilometre standard gauge railway line in Ghana.
President Cyril Ramaphosa's mission to fix two of South Africa's most troubled state companies, power firm Eskom and South African Airways (SAA), could take longer than planned after their chief executives quit within a week of each other.
Investors say the CEOs' resignations could slow the implementation of turnaround plans seen as critical to shoring up confidence in Africa's most industrialized economy, which has for years struggled to grow and whose last investment-grade credit rating is hanging by a thread.
Since becoming president in February 2018, Ramaphosa has pledged to woo investment, create jobs and tackle deep-rooted corruption.
The roles at Eskom and SAA are some of the most challenging in corporate South Africa, with fierce disagreements over how the companies should operate, meaning it will be difficult to find replacement leaders quickly.
Both have received government bailouts in recent years but executives say that financial support was insufficient.
Eskom is choking under 440 billion rand ($30.3 billion) of debt -- equivalent to around 9 percent of South Africa's 2018 gross domestic product -- and this year implemented some of the worst power cuts in several years. It said last month that CEO Phakamani Hadebe would step down in July for health reasons.
But two sources close to Hadebe told Reuters that another reason for his departure was that he felt frustrated at being excluded from important decisions affecting the utility.
Ramaphosa has appointed a raft of advisors to come up with solutions to Eskom's woes and has preferred to listen to their views rather than consult Hadebe, the sources said.
"The government needs to understand that if it wants these companies to be run properly, then it needs to create an environment where the new CEOs can function," said Pavel Mamai, partner at fund manager ProMeritum.
"The CEO changes make the task of fixing Eskom and SAA more urgent."
SAA CEO Vuyani Jarana wrote in his resignation letter last week that his plans to revive the loss-making airline were being undermined by a lack of state funding and too much bureaucracy.
Jarana, who will leave SAA at the end of August, told Reuters in a May 2018 interview that government funding was critical to fixing the airline.
Hadebe and Jarana had both been in their roles for less than two years when they resigned -- a common trend at South African state firms.
"The revolving-door policy at key state-owned enterprises does little to instil investor confidence," said analyst Shaun Murison at IG Markets.
Hadebe's phone was switched off when a Reuters reporter called on Monday. An SAA spokesman said Jarana was not available for comment.
The search for replacements for Hadebe and Jarana has only just got under way.
But the new Eskom and SAA executives will face monumental challenges, which include navigating the competing interests of different sections of government and society.
Eskom and SAA report to South African Public Enterprises Minister Pravin Gordhan, a close Ramaphosa ally respected by investors for running a tight ship while finance minister but whose management style opponents call interventionist.
Gordhan's aides told Reuters on Monday that the financial and operational crises at Eskom and SAA necessitated close attention from the minister.
They said the scale of the problems facing Eskom, which range from liquidity issues to coal quality, meant it was unrealistic to expect the CEO alone to solve them. Fiscal constraints meant the government had to opt for a "phased recapitalization" rather than giving SAA all the money it wanted in one go, they added.
The new executives will also have to establish a close working relationship with Finance Minister Tito Mboweni, who this year likened giving state funds to Eskom to pouring water into a sieve and last year said SAA should be closed down. The airline has not made a profit since 2011.
A further complication comes from labor unions and sections of Ramaphosa's governing African National Congress party that vehemently oppose efforts to trim the two firms' bloated workforces.
Analysts say job cuts should be a key component of the companies' recovery plans and that the stakes are high if those plans fail. Eskom employs roughly 48,000 people, after hiring about 12,000 additional employees in the past decade. A World Bank research report published in 2016 said it was significantly overstaffed.
"If Ramaphosa does not come up with a solution to this crisis soon, there is a good chance Moody's will remove South Africa's last investment-grade credit rating," said Nigel Rendell, a director at Medley Global Advisors.
"Eskom is the biggest issue hanging over financial markets, and there won't be a happy ending unless there is a significant capital injection from somewhere."
Facebook shares tumbled 7.5% Monday following a Wall Street Journal report that said the FTC will be able to examine the effect of Facebook's practices on digital competition.
Facebook's drop shaved more than $38 billion from its market cap, bringing it to about $469 billion. Facebook is already under investigation by the FTC over its handling of user data and has said it is expecting a fine of up to $5 billion.
Shares of other tech giants took a hit over similar concerns. Amazon's stock fell 4.6% Monday following a Washington Post report that the top U.S. antitrust enforcement agencies have a new agreement on tech oversight. The drop shaved more than $40 billion from its market cap, bringing it to $833 billion.
And shares of Google parent company Alphabet were down 6.1% after the Journal reported Friday that the Justice Department is readying an antitrust investigation of Google. The stock lost about $47 billion from its market cap, bringing it to about $721 billion.
Antitrust regulation has remained a distant threat in recent years as scandals like Cambridge Analytica brought the scale of tech power into focus for the public. In the lead-up to the 2020 presidential election, "break up big tech" has become a rallying cry for some, including Democratic presidential candidate Sen. Elizabeth Warren of Massachusetts.
But a new reported agreement between the Federal Trade Commission and the Department of Justice brings that threat a bit closer to reality. The FTC will take the lead on oversight of Amazon, while the DOJ will have greater jurisdiction over Google, according to the Post. The FTC previously closed an investigation of Google without taking action, but now the DOJ will take another look into Google's practices in search and other areas, according to the Journal.
As Zimbabwe’s economy struggles and the country faces scarce fuel supplies, some businesses are refusing to accept the ever-weakening local currency, insisting on doing business in U.S. dollars.
One reason is that the local currency, known as bond notes, are not accepted outside the southern African country, making them useless for any companies that need to import goods.
This spare vehicle parts seller, Tongai Madamombe, says he wants President Emmerson Mnangagwa’s government to switch to the U.S. dollar as pricing in bond-notes has become difficult.
“For those that do not import, charging in bond-notes is not as difficult, as it is for us who import,” Madamombe said. “If you do not calculate well, you will fail to restock. We are really in difficult times. So we are now pricing in U.S. dollars, those who do not have it we use parallel market rates, as we will go there to get foreign currency to import our stock.”
Zimbabwe abandoned its dollar more than a decade ago, when hyperinflation made it worthless. Now the bond notes, introduced two years ago, are also depreciating in value.
The South African rand and British pounds are acceptable in many places, but very hard to find.
Even some Zimbabwe government departments and companies such as the National Railways have started asking for payment in U.S. dollars, partly to protect themselves against the depreciating bond notes.
Fuel is another scarce product in Zimbabwe, and the government continues to control its price. Some companies have resorted to selling it in U.S. dollars only.
Eddington Mazambani, the head of the Zimbabwe Energy Regulatory Authority, says it is only allowing fuel companies that have directly imported fuel on their own to trade in U.S. dollars, as the Reserve Bank of Zimbabwe pays foreign currency for most fuel imports in the country.
“We require documentation, if you have procured through Reserve Bank [and] you then fail to produce documentation to us, we will then take the necessary measures. You would be breaking the law, so we will take measures according to the laws in the petroleum sector,” Mazambani said.
The government says gas stations trading in U.S. dollars when they are supposed to take local currency are being stripped of their licenses. But so far that policy has not made fuel more available or stopped the practice.