By Okey Nwachukwu
The prospect of a telecommunications firm heading for the capital market to shop for funds to shore up its operations would not be a remote possibility especially with emerging signals that one of the top four will be on the hunt soon.
Based on such deciding factors as subscribers base, geographical spread and visibility, Nigeria’s four biggest telecommunications companies are undoubtedly MTN, Globacom, Celtel and Starcomms, the first three being GSM networks. Other major players operating on the CDMA platform are Intercelullar, Reltel Wireless and Multilinks.
Harnessing various financing options, according to experts and industry players, is a natural choice in this case given the situation requiring the major players to continuously innovate and expand their operations in order to maintain current business levels as well as gain further acreage in a highly competitive marketplace.
Until recently, companies from the banking sector, prompted by the consolidation exercise of the Central Bank of Nigeria in 2005, were regular guests of the capital market to source for long-term funds to reinvigorate and widen the scope of their businesses.
A stockbroker, who spoke in confidence said, “We have always expected that one day a major telecommunications company will come to the capital market to hunt for funds. If it happens now, we will not be surprised; it will be a positive development. Besides, the market is ready and capable of taking on as many issues as possible that come here,” a stockbroker was quoted as saying
With a market capitalization of over N15 trillion in January 2008, the frequency of high profile companies to the capital market is a lucid demonstration and acknowledgement of its absorptive wherewithal. Besides, most of the companies that went to the market lately had their shares oversubscribed, and some had to make refunds to investors, in compliance with capital market regulations.
Mr. Olumuyiwa Coker, a partner and regional head, Akintola Williams Deloitte, told Vanguard in an interview that the successful consolidation of the banking industry bear witness to the market’s depth and allayed palpable fears of a burst
He specifically identified strict regulations and control by both the regulatory agencies, the Securities and Exchange Commission (SEC) and Nigerian Stock Exchange (NSE) as crucial factors underlining the market’s buoyancy.
“There is no need to fear that the Nigerian stock market is going to burst. The market still has adequate capacity to absorb any offer coming to the market. The banks are in the next phase of consolidation and all the offers so far issued were highly over subscribed, an indication that the market is still very much under utilised,” he was quoted.
Besides, “we are yet to get to the peak of the market. I don’t see the Nigerian stock market bursting in the next five years like what we saw in Mexico. In as mush as we have vibrant regulators to monitor activities and correct any possible mal practices the market would continue to absorb more products and offers,” he reportedly added
Generally, the return on investments (ROI) in Nigeria is among the highest and best in both the emerging markets and the world at large. At a recent economic roundtable in Abuja organised by the Economist Intelligence Unit (EIU), participants averaged Nigeria’s ROI at 35 percent, making it the highest in the world.
David Cowan, senior economist, EIU stated, “potential rewards for investors do remain high, but the government needs to pick up the pace to ensure that the course for reform becomes irreversible. Also, Nigeria is continually being identified by business leaders as a future hub for West Africa”.
The Nigerian Stock Exchange (NSE) through which most of the transactions have been conducted presently has more than 300 listed companies with a total market capitalisation of about N15 trillion ($125 billion). All listings are included in the Nigerian Stock Exchange All Shares Index.
To ensure unhindered participation in the capital, the Federal Government abrogated the Exchange Control Act 1962 and the Nigerian Enterprise Promotion Decree 1989 thus removing any limits on the percentage of foreign holding in any Nigerian registered company.
On the other hand, investment in the telecommunications sector in the last six years has been estimated at $11.5 billion and expected to grow as more operators, drawn from different segments of the industry, expand the frontiers of the telecommunications landscape.
Chief Executive of the Nigerian Communications Commission (NCC), Engineer Ernest Ndukwe, who divulged the figure recently also disclosed that about $3 billion (N354 billion) is projected to be invested in the Nigerian telecom sector this year alone.
He also offered some insight on what factors are powering the growth. “There is a big informal market in this country and Nigerians love good things and Nigerians are very entrepreneurial in their approach, and many people immediately found that mobile services were essential for their usage for business and for pleasure so they embraced it
“And of course, there is the confidence that the investment community has in the regulatory body that is overseeing the telecom space here. Every investor has a choice. It is either they invest in Nigeria or they invest elsewhere and if the local operating environment is suitable for investment, then the investments start pouring in”.
The UNCTAD World Investment Report for 2007 projects that using the data for the past four years to extrapolate, Foreign Direct Investment (FDI) in Nigeria would hit US$8.6 billion in 2008. The figure was US$ 3.4 billion in 2005, climbed to US$5.4 billion 2006, and reached $7.5 billion in 2007.
Internally, there is a huge pool of funds in the informal sector estimated to be over 80 per cent of the money in circulation. A concerted plan of action, spearheaded by the Central Bank of Nigeria, is imperative to attract such funds, which, in other climes, have been effectively tapped to drive economic growth and development.
Although currency in circulation dropped to N860.84-billion in February this year from N960 billion at the end of December last year, a 10.3 percent reduction the Central Bank of Nigeria (CBN) attributed to fluctuations in Diaspora remittances, the projections still look sound. Professor Chukwuma Soludo, CBN governor, had disclosed that Nigeria would attract about $20 billion in remittances between 2006 and 2010 at an annual average of $4 billion.
Intense competition among the CDMA operators, on one hand, and the GSM operators, on the other, for market space I consider as another cogent reason for robust financial back up. Over the last seven years, they have relied heavily on offshore funding and a drip from investment and finance houses.
Last year, for instance, a 21-bank consortium comprised of 11 local and 10 offshore financial institutions, syndicated a loan worth $2 billion to enable MTN, arguably the largest cellular operator, upgrade its facilities and service delivery system.
Records of the regulator, the Nigerian Communications Commission put the country’s subscriber-base at almost 42 million at the end of 2007, with GSM operators accounting for over 90 percent and the remaining by CDMA networks
The CDMA networks, however, are on the ascendancy following an unprecedented demand for their services engendered in part by the acquisition of unified licences that have given them multiple platforms to play on.
Starcomms, for instance, was granted the unified licence late 2006, and subsequently launched its mobile lines in February last year. The resultant surge in demand for its lines had propelled the network’s subscribers base to over one million by February this year and effectively established it as Nigeria’s 4th largest telecommunications operator.
It also relied on the licence to cue into what is apparently the biggest thing in telecom today, “triple play,” by offering a package for voice (mobile and fixed), broadband Internet, and television. This platform has the capacity to reinvigorate sector, reconfigure the landscape, and transform the fate of a lot of people
Overall, I am a strong believer that with an enabling environment, which continues to get better, the making of mega profits by telecommunication companies is bound to continue, and ownership of stakes in them would be a lucrative window of oportunity to any wise investor with the huge dividends this is expected to yield.
•Nwachukwu is a Lagos-based Marketing & Communications Consultant.
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