BUSINESS REVIEW: Why 9mobile may continue to depend heavily on loans to compete as a telecoms service provider

• AFC approves $230 million loan for 9mobile – NEWS
• From Etisalat to 9mobile – the story in between
• Company’s debt history
• What’s the future?

Technically, the 9mobile story will be incomplete without a courtesy mention of what led to its change of name sometime in 2017.

After a rather long period battling to recover from a $1.2 billion bank loan; Etisalat International, the parent enterprise headquartered in the United Arab Emirates (UAE), called it quits with the Nigerian entity trading as Etisalat Nigeria. Etisalat International then requested that the Nigerian foothold consider immediate rebranding.

That irrevocable order from the UAE is what birthed the change of name that now goes simply as 9mobile.

Debt history

In 2009, barely 4 years after commencing business in Nigeria, 9mobile (when trading as Etisalat) approached financial institutions for a loan, with an intent to channel the fund into network rehabilitation, upgrade and expansion of its operations within Nigeria. In response to that financial request, a $1.2 billion was raked up from 13 Nigerian banks, including;

• Access Bank,
• Zenith Bank Plc,
• Guaranty Trust Bank Plc,
• First Bank Limited,
• Fidelity Bank Plc,
• First City Monument Bank (FCMB),
• Stanbic IBTC,
• Ecobank,
• United Bank for Africa (UBA) Plc and
• Union Bank of Nigeria Plc.

After failing to service the debt as required, and several unsuccessful attempts by the CBN and NCC to intervene, the company suffered a collapse as its major shareholders divested in 2017.

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To the present

It’s another two years since operating as a rebranded entity from a start-off in 2017. Here, we are with another $230 million staring at us. Yet another beautiful reason has been given for applying for it. It has come in the colour of repositioning the firm by helping it attain its long-term growth plans.

How is 9mobile addressing its challenges?

What 9mobile has, perhaps, not gotten right is how to manage finances –risk balancing, inventory auditing and to define their competitiveness with other firms in the telecoms space. Aside this, there is the need for 9mobile to invest in talents that can efficiently manage their capital structure, formulate capital budgeting decisions and distribute risk.

Time to recalculate

In finance, a good way to measure is to consider a company’s debt-to-equity ratios. That is, how much is borrowed and how much is invested by owners in the running of operations. While these figures might not be available to us for cross-examination, 9mobile should draw the lot.

From market insights, Nigeria might not be a place to run with high debt-to-equity ratios. In the US, what we see according to data released in the first quarter of 2019 pegged debt-to-equity at 0.55, indicating that half of the company’s fund is borrowed and the other half of its capital from owner(s). We might want to ask: how much of 9mobile’s capital is equity against the value of its debt?

Although, Japan once operated at as high as 90-95% debt-to-equity ratio; and did not crumble. However, understanding why Japan operated at such higher ratios is important. Japan did that at a time when the Japanese stock exchange was pretty small. Today, it’s a different story for Japan as its stock exchange is ranked 3rd in the world with Market Capitalization standing at $5614217.12 Trillion, and recent debt to equity at just 1 per cent.

What must 9mobile do?

9mobile needs to be more calculated on loans and how much it needs from the lending public. The management must come to terms to understand that the telecommunications industry isn’t real estate where property value can be projected to effectively service loans in the long term. This, to note, is the reason why lenders comparatively value real estate loan application as outstanding collateral.

Although, during the $1.2 billion debt crisis, economic factors like the 2016/2017 recession could have worsened the situation. If economic reports are correct with their claims on improved economy as compared to 2017, perhaps, this might be a new beginning to growth for 9mobile if the management reviews terms and redesigns a framework that will sufficiently reposition the brand. Else, the company is at the risk of overtly depending on loans from time to time.

By Ridwan Adelaja…

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