Perhaps, one of the major issues that dominated the telecoms sector last year was the face-off between the Central Bank of Nigeria (CBN) and telecoms giant, MTN Nigeria.
The CBN had ordered MTN Nigeria to refund $8.1billion allegedly taken out of the country without recourse to laid down procedures, while the apex bank also imposed fines on four local lenders that facilitated the transaction. Specifically, Certificate of Capital Importation (CCI) in respect of the cash repatriation was at the centre of the disagreement between the telco and the financial services sector regulator.
Coming on the heels of the $8.1billion saga, the Office of the Attorney General of the Federation issued demand notice of $2billion on the telco which, it alleged, reflected taxes unpaid over a period covering about one decade. This grew the total cash hanging on the frail neck of the telco to $10.1billion. The telco strongly rejected both allegations.
What generated local and international interest in the face-off was that the telco was yet to complete the payment of N330billion fine imposed on it by the Nigerian Communications Commission (NCC) over subscriber identity module (SIM) card registration infraction.
The reaction was, therefore, unexpected as some South African investors that visited Nigeria Stand at the last International Telecoms Union (ITU) World held in Durban, pointedly accused the Federal Government of trying to take over the telco. They accused the government of hardline regulation which, they argued, was a disincentive to foreign direct investment (FDI) inflow into the country.
Executive Vice Chairman, NCC, Prof Garba Dambatta, and MTN Group CEO, Rob Shutter, calmed frayed nerves, assuring that the issue would be settled amicably.
How it started About two years ago, a lawmaker, Senator Dino Melaye, had alerted the National Assembly on how MTN allegedly repatriated about $13 billion out of the country over a 10-year period.
He accused the telco of ‘Unscrupulous Violation of the Foreign Exchange (Monitoring and Miscellaneous) Act’ by repatriating about $13.9billion from Nigeria to other countries over a 10-year period. The lawmaker said the amount moved by MTN was about half of the nation’s forex reserves.
The motion generated reactions from every quarter because it was less than a year after the telco was slammed a record fine of $5.2 billion for failing to deactivate over five million unregistered SIMs on its network. The allegation came during the period oil prices dipped culminating in an inevitable slip of the economy into its first recession in 25 years.
It was agreed that the Dino allegation be investigated. MTN Nigeria denied any wrongdoing, arguing that it only requested for CCIs for Foreign Capital that was imported into Nigeria, dividends were neither declared nor paid until the CCIs were issued and finalised.
MTN Nigeria CEO, Ferdi Moolman, had explained that “the requirement to issue a CCI within 24 hours of conversion is an administrative requirement. As such, the CBN has the authority, and indeed we believe, approved the banks’ applications to issue CCIs outside the recommended time frame.”
e-CCI
The CBN in June 2016 introduced the Electronic Certificates of Capital Importation (e-CCI) to replace paper approval, for improved efficiency in line with its desire to use technology to drive its operations.
CCI is a CBN certificate issued by banks for the importation of cash (foreign currency inflow) for investment as equity or loan, and also for the importation of machinery and equipment for investment as Equity or Loan.
It is usually issued in the name of the investor between 24 and 48 hours of the inflow of the capital into the country. Its primary purpose is to guarantee access to the official foreign exchange (forex) market for repatriations of capital and returns on investment – dividend, interest, and capital on divestments. A copy of the CCI must be presented to the Nigerian bank to process a remittance by the requesting company.
Senate’s sudden volte face
The Senate, last year, exonerated the telecom giant and recommended Stanbic IBTC to CBN for sanction “for improper documentation in respect of capital repatriation and loan repayments” on behalf of MTN.
The report generated a lot of furore on the floor of the Senate as some senators did not understand why the report largely condemned the CBN and exonerated MTN, which was at the centre of the alleged shoddy deal, after the investigation.
CBN wields big stick
On conclusion of its investigation, the CBN ordered MTN Nigeria and the managements of four local lenders to immediately refund $8,134,312,397.63 illegally repatriated by the company to its coffers.
CBN’s Director, Corporate Communications, Isaac Okorafor, in a statement in Abuja, said the actions of the apex bank became necessary following allegations of remittance of forex with irregular CCIs issued on behalf of some offshore investors of MTN Nigeria Communications Limited and subsequent investigations carried out by the apex bank in March this year.
The four lenders that also came under the sledge hammer of the CBN for the violations of extant forex regulations are Standard Chartered Bank, Stanbic-IBTC, Citibank, and Diamond Bank.
Figures obtained from the CBN indicate that the highest fine of N2,470,604,767.13 was slammed on Standard Chartered Bank, while Stanbic IBTC Nigeria was fined the sum of N1,885,852,847.45. For its punishment, Citibank Nigeria was penalised in the sum of N1,265,541,562.31, just as Diamond Bank was directed to pay the sum of N250 million for violating extant rules.
Okoroafor said the decision of CBN followed thorough investigations by it into the allegations of remittances by the four banks of forex with irregular certificates of CCIs issued on behalf of some offshore investors of MTN Nigeria Communications Limited.
He said the investigations revealed that $3,448,119,321.72 was repatriated by Standard Chartered Bank on the basis of the illegally issued CCIs. Similarly, $2,632,005,623.78, $1,766,263,212.75 and $348,914,501.30 were repatriated by Stanbic IBTC Nigeria, Citibank Nigeria and Diamond Bank Plc, respectively between 2007 and 2015. Accordingly, he said the CBN had directed the affected banks to immediately refund the respective sums to the CBN.
The apex bank’s investigation further revealed that on account of illegal conversion of MTN shareholders’ loan to preference shares (interest free loan) of $399,594,146.00, the sum of $8,134,312,397.63 was illegally repatriated by the telco.
He said investigations by the CBN took a while in order to carry out thorough inquiry and give fair hearing to all parties involved. Okorafor advised all banks and multinational companies in the country to adhere strictly to the provisions of all extant laws and regulations of the country in their forex transactions. He warned that failure by the management of banks and companies to abide by existing guidelines would be appropriately sanctioned, which sanctions may include denial of access to local forex market.
MTN rejects CBN’s $8.1b cash refund order
MTN Nigeria rejected CBN demand to refund $8.1billion allegedly illegally repatriated from the country.
The telco insisted that all the dividends it paid to its shareholders between 2007 and 2015 were approved by the apex bank.
The telecom giant was reacting to the claim of the apex bank that it illegally converted shareholder loans to preference share and repatriated $8.1 billion as dividends during the period under scrutiny.
MTN in a statement titled: “Central Bank of Nigeria (CBN) correspondence regarding Certificates of Capital Importation (CCIs) in Nigeria”, said it strongly refutes the allegations and claims.
“MTN Nigeria Communications Limited (MTN Nigeria) received a letter on 29 August 2018 from CBN alleging that CCIs issued in respect of the conversion of shareholders’ loans in MTN Nigeria to preference shares in 2007 had been improperly issued. As a consequence they claim that historic dividends repatriated by MTN Nigeria between 2007 and 2015 amounting to $8.1 billion need to be refunded to the CBN.
“MTN Nigeria strongly refutes these allegations and claims. No dividends have been declared or paid by MTN Nigeria other than pursuant to CCIs issued by our bankers and with the approval of the CBN as required by law,” the telco said.
MTN said the issues surrounding the CCIs have already been the subject of a thorough enquiry by the Senate.
“In September 2016, the Senate mandated the Committee on Banking, Insurance and other Financial Institutions to carry out a holistic investigation on compliance with the Foreign exchange (monitoring and miscellaneous) Act by MTN Nigeria & Others. In its report issued in November 2017, the findings evidenced that MTN Nigeria did not collude to contravene the foreign exchange laws and there were no negative recommendations made against MTN Nigeria.
“MTN Nigeria, as a law-abiding citizen of Nigeria, is committed to good governance and to abiding by the extant laws of the Federal Republic of Nigeria. The re-emergence of these issues is regrettable as it damages investor confidence and, by extension, inhibits the growth and development of the Nigerian economy.
“We will engage with the relevant authorities and vigorously defend our position on this matter and provide further information when available,” the telco said in the statement.
ALTON reacts
The Chairman, Association of Licensed Telecoms Companies of Nigeria (ALTON), Gbenga Adebayo, had said the development was worrisome as it is capable of hurting the health of the telco.
He said: “The development and situation as we are reading in the news is worrisome, but we are hoping that parties will discuss and resolve in the best way because of the huge investment they have made and the significant contribution of MTN to our socio-economic development. We, however, expect that all the critical stakeholders will discuss in good faith and find a good way around this situation.”
He said compelling the telco to refund that huge cash would have significant impact on future investment, warning that wrong signals should not be sent out to willing investors.
He urged the NCC to intervene in the best interest of the industry and because of the possible impact of this on the entire industry.
On the implication of the development on the corporate image of the telco, he said MTN had said due process was followed and the burden of prove is on the CBN.
“Our members have very high principles of corporate governance and this report as made is of concern, but we are certain that it will be resolved in the best interest of our member and that of the larger industry,” Adebayo said.
His counterpart in the Association of Telecoms Companies of Nigeria (ATCON), Olusola Teniola, had accused the CBN of interlopping.
He said: “It is very important to note that the figure referred to has almost been fully paid by MTN and that the $8.1billion doesn’t belong to CBN but belongs to MTN. So on this basis, it is hard to understand exactly what CBN seeks by its demands on MTN that it doesn’t have regulatory oversight over. I fully believe MTN will continue to engage with the relevant authorities to resolve this latest setback. “
He believes clarity, transparency and continued dialogue from both CBN, the banks and MTN to amicably resolve this matter in the interest of the wider stakeholder community, especially, potential investors closely watching developments on this issue. At the moment processing of CCIs is shrouded in confusion in what should be a relatively straight forward process in between the banks and CBN their regulator.
Teniola said a refund is very unlikely. He said: “The size of the demand and timing is unreasonable and not in the interest of the country. After all, the Naira equivalent will have to be returned to MTN Nigeria. It is then an interesting situation that this seeks to redress events that occurred when CBN had full oversight and approved the transactions. How do they intend to do that?”
He believes the matter should be between the banks and CBN and not the client of the banks which is MTN. “NCC may decide to intervene if events unfold that threaten the survival of MTN and the telecom industry that they regulate. For now it is too early to see which way this will take,” he said.
CSL Stockbrokers
CSL Stockbrokers described the development as another regulatory impasse.
The stockbroking firm had reacted in a series of tweets shared on its official Twitter handle, at the weekend.
It said the N5.9 billion fine will largely be immaterial; at least for its clients Diamond Bank and Stanbic IBTC. This is because “this amount is not large enough to pose as a threat to their financial stability and/or near-term profitability”.
@CSLStockbroking
The CBN has also ordered that MTN refunds US$8.1bn that was alleged to have been “illegally repatriated”.
“This appears impossible given that the funds have long been distributed to shareholders and lenders over time, and cannot be practically raised by MTN itself without major disruptions to its business…
“We believe the regulator may resort to imposing a fine on MTN (which will materially impact profitability), or restrict future repatriation of funds by MTN, with the attendant effect on its foreign lenders and shareholders.
“For MTN, the market is not taking the CBN’s directive lightly. Panic sales appear to have been triggered with MTN Group’s share price (as of time of writing) taking a 31 per cent nosedive since the news broke.
Impact on IPO
Part of the settlement terms for the N330billion fine MTN reached with the NCC is listing on the Nigerian Stock Exchange (NSE).
CSL Stockbrokers, however, said the new development may threaten the ability of the telco to fulfil this important aspect of the agreement the NCC CEO, Prof Garba Dambatta, said was signed, sealed and delivered between MTN and the Federal Government.
“Of particular concern, the CBN’s refund directive given to MTN could potentially impact its Initial Public Offering (IPO) in Nigeria – which was expected to have commenced this month – and heightens the risk of an IPO undersubscription,” the firm said.
Like the ATCON chief, CLS Stockbrokers said it will be impossible for the telco to refund the cash because “the funds have long been distributed to shareholders and lenders over time, and cannot be practically raised by MTN itself without major disruptions to its business.”
Resolution, withdrawal of case from court
The CBN said it had reached an agreement with MTN over the matter.
Earlier, MTN had said the matter was resolved and it agreed to make a $53 million payment. CBN did not refer to a figure but said the sides decided that the agreement would lead to an amicable disposal of the pending legal suit between the parties and final resolution of the matter.”
The CBN had ordered MTN and its lenders to bring back a total of $8.1 billion it alleged the company had illegally repatriated using improperly issued paperwork between 2007 and 2008.
“The CBN upon review of the additional documentation concluded that MTN Nigeria is no longer required to reverse the historical dividend payments made to MTN Nigeria shareholders,” MTN said in a statement. However, the CBN has found that a 2008 private placement remittance worth around $1 billion was based on certificates that did not have final approval.
