ROFIAT MURAINA
MTN and Liquid Intelligent Technologies (LIT) are exposed to inflation and currency depreciation in their South Africa, Zimbabwe and Nigerian markets, said Moody’s Ratings, adding though that regional telecoms operators stood to benefit from booming population and increased uptake of mobile services.
South African telecoms groups have forayed into regional markets, including MTN and Vodacom, where they are also running broadband and setting up mobile money services to broaden revenues and earnings.
However, for operators like MTN, exposure to exchange rates mainly comes from translating results into its rand reporting currency and from the dollar indexation element on its tower leases, especially in Nigeria, said Moody’s senior analyst, Lisa Jaeger.
It is less exposed to a currency mismatch between earnings and debt because it has shifted debt from dollars into rand and naira over the past two to three years and continues to raise debt in local currency at its subsidiaries,” noted Jaeger and other analysts in a new report by Moody’s on the Sub Saharan African telecommunications sector.
On the other hand, LIT – the independent fibre network operator – earns around 75% of its revenue in local currencies such as the Zimbabwe Gold South African rand. Most of LIT’s customer contracts “do not include any price escalation mechanisms, exposing LIT to inflation and currency depreciation” risks.
LIT’s contracts, however, leaves some room for price increases to cover for this as they can be renegotiated periodically, usually on an annual basis while in some countries these have to be approved by the local regulator, adding some regulatory risks and volatility to earnings.
In the case of MTN, in the 18 months to June 2024, the operator’s financial performance suffered significantly from depreciation in Nigeria’s naira.
MTN’s “naira earnings became worthless” when translated into rand, significantly contributing to its 20% drop in group revenue over the half-year period to the end of June.
To offset currency depreciation, mobile network operators operating in volatile markets such as in the case of MTN are resorting to raising tariffs in line with inflation, which is usually correlated to depreciation.
LIT’s strategy to reduce exposure to currency depreciation comes in the form of matching its rand earnings with rand-denominated debt.
However, there remains a mismatch between revenue earned in other local African currencies and its dollar-denominated debt for around 45% of earnings before interest, taxes, depreciation, and amortization (Ebitda) including Zimbabwe and around 20% of Ebitda when excluding Zimbabwe.
“Zimbabwe continues to experience high inflation and a weakening currency, even after the introduction of the new currency Zimbabwe gold (ZiG) in April 2024. Even though dollar availability has improved, there remain limitations on converting any cash generated in Zimbabwe into dollars and on moving it out of the country,” notes the Moody’s report on the regional telecoms sector.
