NIGERIAN TELECOM COMPANIES COURT RELUCTANT BANKS FOR INVESTMENT

Mergers, Acquisitions and Financial Results

The Association of Telecommunications Companies of Nigeria (ATCON) is seeking the cooperation of banks and other financial and funding institutions, both local and foreign, to fund telecommunications projects. ATCON consequently gathered bank chiefs, chief executives of telecommunications companies and captains of industry to one day brainstorming session tagged, "Telecom Investment Forum"

The forum was an ATCON initiative designed to create avenue of cooperation and understanding between operators of telecommunications and the banking sectors with a view to encouraging greater investments in the Nigerian telecommunications sector. ATCON said that huge capital outlay is required to import equipment and engage skilled manpower needed for accelerated expansion of the networks to ensure quality service delivery and power growth in the economy.

Chaired by chairman of Nigerian Telecommunications Limited (NITEL), Engineer Vincent Maduka, the event, provided a platform for frank talks and ventilation of ideas by stakeholders.

Chairman of Cell Communications Limited (Cellcom), Chief Patrick Chidolue set the tone of the forum in his emotional presentation which highlighted the challenges of financing facing private telecom operators.

His paper, "financing telecommunications in Nigeria: the options and challenges for the private operators" , pointed out the difficulties faced by operators in sourcing for funds to grow their networks.

The operators painted a difficult picture of searching for funds but the banks appeared unwilling to shift their traditional ground. The financial institutions’ argued that since they operate with people’s deposits, it would make no business sense to take depositors money at 22 per cent and give it out at 19 per cent.

President of ATCON, Engineer Charles Joseph, agreed that the financial institutions are not charitable organization but insisted that telecommunications business is highly capital intensive.

Engineer Joseph called for understanding and cooperation between the telecommunications operators and the banks.

But a banker who pleaded anonymity said it may be hard to get the kind of understanding and cooperation being sought by the ATCON president.

"Telecom companies do not have assets you can sell if there is problem, you cannot sell base stations; the emphasis is on cash flow, and bank would jostle to finance vibrant and positive cash flow business", the banker added.

Managing Director, MBC International Bank Limited, Raymond Bariou, however, said his bank has developed financial products to specifically cater for all aspects of telecommunications business, including fixed telephony, mobile telephony, internet services solutions providers and value-added service providers.

"MBC has amassed considerable expertise in syndications and project finance which is a core focus of the bank. We have handled transactions cumulatively in excess of N40 billion and arranged foreign denominated loans of over USD100 million in the last two years", Bariou told the Forum.

According to him, the mobile market holds the best potential for growth given the burgeoning demand for basic services and will account for more than 60 per cent of revenue over the next five years.

His words "this is due to a combination of factors, including pent-up demand, technological trends and competitive dynamics in various sectors of the communications market."

A team from Equity Bank of Nigeria, said the bank can fund the establishment of telephone exchange for a telecom company.

The bank however said that it would require a feasibility report on the viability of the exchange showing sufficient cash flow to pay back the facility within the agreed tenor.

The team, also, listed other financing options, including guarantee, overdrafts and equipment leasing.

"We have been closely associated with the establishment and expansion programmes of four key operators in the telecom industry with a total exposure in excess of N2 billion. This makes us a force to be reckoned with since we have mastered the nuances of the sector", the team added.

Oceanic Bank Limited, also, said it is deposed to financing telecommunications in Nigeria, noting that there are opportunities bolstered by the low penetration levels, high unmet-demand, increase in GSM over fixed lines, licensing of new operators and opportunities to use next generation technology.

The bank, however, noted that Nigeria, like the rest of Africa, is faced with challenges of attracting investments.

According to the bank, the average African telecommunications transaction size is small by international standard and it is considered to be non-strategic.

This, the bank said, is exacerbated by perception risks which has remained high in Africa and has militated against access to capital, especially foreign investments.

Oceanic Bank also said it has all the financing options needed by start-up businesses and existing structure of the balance sheet such as the proportion of equity to debt or the proportion of long term to short term debts.

But Executive Director of El-Ferrari Nigeria Limited, Mr. Fred Ezeji-Okoye, described the banks’ promises as "all sounds and fury signifying nothing"

"Na so so story, when you step into any of the banks tomorrow, they will start reeling out conditions for you. None of them would lend short, term to you and it is not their fault, the economy does not support them lending short Mr. Ezeji-Okoye added.

Experts said, and the banks agreed, that government has greater role to play by providing incentives to investors to enable them grow rapidly and efficiently.

Such incentives include tax waivers for telecom companies, and granting of pioneer status to qualified investors in the telecom industry.

Engineer Joseph urged governments at all levels to encourage the growth of the industry by lending support to the private sector initiatives rather than enact laws that place unnecessary impediments on the paths of developments in Nigeria.

In the drive to provide medium and long term debt fund at affordable rates to support the telecoms industry, Nigerian banks can structure bonds and other instruments as the oil industry is currently enjoying.

Daily Champion