IHS Telecom Tower Debt Levels Cloud Outlook For MTN Asset Sales

The company said at the end of January that its seeking to raise $4b by selling assets including stakes in IHS and in its Nigerian unit. MTN has already raised about $950mn by selling non-strategic businesses since last March.

The towers business is by far the largest asset that MTN is trying to sell, says Mark Ansley, a fund manager at Argon Asset Management in Cape Town.

Most investors believe that the towers business is valuable, but Ansley takes a contrarian view. “These tower businesses have large US dollar-denominated debt and once this debt has been serviced there is very little earnings left over and nothing to pay a dividend.”

MTN CEO Rob Shuter is “doing a great job” of talking up the valuation of IHS, Ansley says. “The market is believing his bullish outlook and prospects for realising value from associate and non-core asset sales.”

As of last June, MTN valued its 29% stake in IHS at 23bn rand ($1.6bn).  Ansley argues that tower companies are usually valued on the dividend yield basis, but in this case there is no yield. As of September 2019, IHS Netherlands, of which IHS Holdings is the parent company, was carrying loans of $2.7bn.

The cost of financing wipes out cashflow and earnings, Ansley says.

• “The debt inside IHS cannot be ignored,” he says. “I don’t assign much value to MTN’s holding in the IHS Towers business. Effectively it’s not worth anything.”
• MTN may also sell about 14% of its business in Nigeria, which would cut its stake to about 65%.

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Investors have shown themselves willing to buy into the African telecoms towers story. Helios Towers in October raised $364m in its London IPO.―The Africa Report