MTN Nigeria goes technically insolvent as forex crisis hits telco

MTN Nigeria is technically insolvent or bankrupt as its liabilities surpassed assets in 2023, Economy Post‘s analysis of the telco’s full-year financial statement has shown.

MTN Nigeria’s total assets stood at N3.189 trillion in the year ended December 2023 while total liabilities were valued at N3.229 trillion at the same period.

According to Investopedia and other accounting books, a company is deemed technically insolvent, asset deficient or accounting insolvent when its liabilities rise faster than assets or are above assets.

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“Accounting insolvency refers to a situation where the value of a company’s liabilities exceeds the value of its assets. Accounting insolvency looks only at the firm’s balance sheet, deeming a company ‘insolvent on the books’ when its net worth appears negative,” Investopedia says.

This is different from actual insolvency or cash flow insolvency where the firm cannot pay its debts or meet obligations to vendors, Investopedia adds.

Iowa State University explains that “if liabilities exceed assets and the net worth is negative, the business is ‘insolvent’ and ‘bankrupt’ ”

Solvency, according to the university, can be measured by dividing total liabilities by total assets.

The Corporate Finance Institute, a leading banking and finance training provider, says that “if an individual or company owns assets that are greater than liabilities, it is said to show a positive net worth. If the liabilities are greater than assets, it implies a negative net worth.”

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Also, the telco’s cash and cash equivalents stood at N345.168 billion as against N349.788 billion in the year ended 2022.

Cash and cash equivalents refer to assets that are cash or can be converted into cash immediately.

Forex crisis hits telco

Foreign exchange (Forex) crisis and naira depreciation in Nigeria hurt MTN Nigeria badly in 2023 as the telecoms company incurred net forex loss of N740.4 billion as against N81.8 billion reported in the corresponding period of 2022.

Loss after tax stood at N137 billion compared to a profit after tax of N348.7 billion in 2022, wiping off shareholders’ funds.

Chief Executive Officer of MTN Nigeria, Mr Karl Toriola, said: “MTN Nigeria’s operations are exposed to foreign currency volatility on its operating and capital expenditure. The most significant of these exposures relates to the tower lease costs, which comprised the bulk of the 45-50% foreign currency exposure in our operating expenses in 2023.

READ ALSO: Borrowers, investors hit as CBN raises interest rate to 24.75%

“The majority of the lease costs are indexed to the US dollar but are invoiced and paid in naira. Our tower lease costs are recognised in line with IFRS 16 and IAS 21, which has had several impacts on our financial performance.”

He said the nature of payment for tower contracts required quarterly payments using the applicable exchange rate based on the reference rate at the end of the preceding quarter for some of the contracts and the average rate in the same preceding quarter for others.

Mr Toriola said MTN Nigeria anticipated a challenging 2024 as it tackled the complexity and ongoing effects of high inflation and elevated forex volatility on telecoms’ operations.

“Given the material uncertainty these present in the near term, we have suspended our medium-term guidance for EBITDA margins. We maintain
the medium-term guidance for service revenue. In light of the negative retained earnings at the end of 2023, the Board of Directors has resolved not to declare a final dividend for 2023.”

Firms are hurt

Nigeria’s foreign exchange crisis is hurting firms across various sectors. Manufacturers are scrambling for forex to import raw and packaging materials while other firms need dollars to make settlements or pay debts.

READ ALSO: In 11 years, Nigerians collected $59bn from banks for foreign trips – CBN

Analysts say firms must begin to seek ways of reducing their forex exposure to reduce losses and keep themselves in good financial health.

“MTN Nigeria is not the only firm that is hard hit by forex crisis. A lot of manufacturers cannot import their inputs. Some have even closed shop,” said a Lagos-based economist, Dr Usman Danladi.

“Firms must begin to reduce their exposures to forex. On the other hand, the Nigerian government must begin to make plans to ensure the country becomes a net exporter of finished goods. All I have seen are efforts by the central bank. Where are others? Where are Ministries, Departments and Agencies (MDAs)?” he asked.

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