MTN and Airtel Cut FX Exposure Amid Currency Volatility

In a strategic response to the continued depreciation of the naira and the resultant financial turbulence, MTN Nigeria Communications Plc and Airtel Africa Plc have significantly reduced their foreign exchange (FX) exposures.

As of the first half (H1) of 2024, these leading telecommunication companies have cut their combined FX exposures to $100 million from $966.6 million reported in December 2023.

This reduction represents a decrease of $866.6 million in FX debt.

The Central Bank of Nigeria’s (CBN) decision to unify the country’s foreign exchange market in June 2023 led to a dramatic depreciation of the naira, plummeting from N471/$ to N1,384/$ by June 2024.

This drastic devaluation eradicated the substantial revenue gains reported by MTN and Airtel in the first half of 2024, amounting to N563.20 billion.

MTN Nigeria, the largest telecom operator in the country by subscriber count, reported a 32.83 percent increase in revenue, rising to N1.54 trillion in H1 2024 from N1.16 trillion in H1 2023.

However, the company faced a staggering loss after tax amounting to N519.1 billion. Similarly, Airtel Nigeria, a subsidiary of Airtel Africa, saw its naira-denominated revenue increase by 35.29 percent to N700.90 billion in H1 2024, up from N518.08 billion in H1 2023.

Despite this growth, the company’s dollar-denominated revenue fell sharply to $522 million from $1.07 billion over the same period.

Gbenga Adebayo, chairman of the Association of Licensed Telecom Operators of Nigeria (ALTON), highlighted that the financial performance of Nigeria’s mobile industry has slowed in recent years after a long period of sustained growth.

“Both MTN and Airtel have declared significant foreign exchange (FX) losses in Nigeria, and the stress is not linked to them alone,” he stated.

In response to these challenges, MTN and Airtel have actively reduced their foreign exchange exposures. MTN managed to cut its outstanding letters of credit (LC) from $416.6 million as of December 2023 to $100 million by H1 2024.

“We have made significant progress in reducing the outstanding letters of credit (LC) US$ obligations, which contribute to the volatility in our earnings through forex losses,” said Karl Toriola, CEO of MTN Nigeria.

“On the back of our capex optimisation and improved forex liquidity in the market, we reduced the balance of outstanding LC obligations ahead of plan to approximately US$100 million as at the end of June 2024.”

Airtel Africa also took decisive steps to mitigate currency fluctuations by clearing its external debt at the holding company level.

The company repaid $550 million of 5.35 percent guaranteed senior notes maturing in May 2024, significantly reducing its exposure to currency fluctuations.

“This bond repayment was made exclusively out of the cash reserves at the HoldCo and is a continuation of its strategy to reduce external foreign currency debt,” Airtel Africa stated.

At its IPO in June 2019, Airtel Africa had $2.72 billion in external debt at its HoldCo, which has now reached a zero-debt position after the recent repayment.

Sunil Taldar, CEO of Airtel Africa plc, emphasized the company’s commitment to further reducing foreign currency exposure across the group to limit the impact of currency devaluation on its business.

“The growth opportunity across our markets remains compelling, and we continue to focus on margin improvement,” Taldar said.

Despite these efforts, the telecom industry’s heavy reliance on FX for essential equipment, infrastructure, and technology procurement remains a challenge.

Roseline Ogundokun, a lecturer at Landmark University’s Department of Computer Science, noted, “The telecoms industry, like many others in the country, is heavily reliant on FX for the procurement of essential equipment, infrastructure, and technology.”

To address these issues, telcos are adopting other cost-saving measures, such as seeking local alternatives for some of their solutions and engaging with homegrown tech businesses.

However, some costs remain FX-dependent, and bulk payments are now being used to manage these expenses.