MTN Looks to Spin Off Fiber, Fintech Units to Unlock Value

Loni Prinsloo, Bloomberg News

A map of African operations hangs on a wall near a glass elevator at MTN Group Ltd.'s headquarters in Johannesburg, South Africa, on Thursday, March 8, 2018. MTN may exit markets that aren't self-funding as Chief Executive Officer Rob Shuter reviews the 22 countries in which it operates. Photographer: Waldo Swiegers/Bloomberg , Bloomberg

(Bloomberg) -- MTN Group Ltd. has begun work toward separating its fiber and fintech units as part of plans to unlock value and raise funds to fuel expansion. The shares jumped to their highest in more than a year.

Africa’s biggest wireless carrier is seeking strategic partners and investors for the businesses, Chief Executive Officer Ralph Mupita said in a presentation Wednesday. The company owns 85,000 kilometers (52,817 miles) of fiber across the continent, while fintech products such as mobile-payment services are growing rapidly.

“We recognize that there is a significant data demand in Africa that is not going to stop,” said Mupita, who was promoted from chief financial officer to replace Rob Shuter last year. “Nothing is stopping us bringing other parties to help us fund the infrastructure we need. That work is already underway.”

The strategy represents the next phase of an ongoing plan to sell assets and pay down debt to free MTN to invest in expansion. The Johannesburg-company is looking to take advantage of the millions of Africans connecting to the internet for the first time every year, many through smartphones, as well as rapid population growth in major markets such as Nigeria.

MTN’s fintech business could contribute 20% of group revenue in the next three to four years, compared with 8% currently, Mupita said.

Suspended Dividend

The CEO laid out his new strategy after MTN opted not to pay a final dividend and stepped up a debt-repayment plan. Borrowings were reduced by 22% to 43 billion rand ($2.8 billion) over the course of 2020 and the company plans to resume payments to investors with at least 2.60 rand a share slated for this year.

“We believe the dividend suspension is positive, given past asset realization proceeds were effectively paid out in the absence of Nigerian cash repatriation,” said JPMorgan Chase & Co. analysts said in a note. The U.S. bank upgraded the price target to 110 rand a share.

The shares rose 12% to 83.10 rand as of 4:03 p.m. in Johannesburg on Thursday.

MTN has been selling assets, and has a target of raising 25 billion rand. The carrier exited stakes in Ghana and Uganda tower assets last year, and has also offloaded an interest in e-commerce group Jumia Technologies AG.

Next up may be the sale-and-leaseback of the company’s South African towers, said Mupita. However, the realization of MTN’s stake in IHS Holding Ltd., a pan-African operator of telecom masts, has been delayed after the company put off plans for an initial public offering.

MTN values its portion of IHS at 27 billion rand, and is confident that the IPO will happen in the next calendar year, Mupita said. The company will declare a special dividend or share repurchase if the plans deliver additional cash, he said.

MTN upped medium-term revenue guidance from double digit growth to low-to-mid teens.

(Updates with share price starting first paragraph)