MTN Group’s biggest shareholder is pushing for changes at Africa’s largest mobile phone company to avoid the regulatory, legal and political disputes that have cut its share price by more than half over the past four years.
The Public Investment Corporation built a 26% stake in Johannesburg-based MTN by late November and used that to call for the replacement of chairman Phuthuma Nhleko, people familiar with the matter said. Africa’s biggest fund manager, which is South African state owned, also sent a letter to MTN demanding a board reorganisation, said one of the people. That resulted in the appointment of more politically connected directors.
Last month, the carrier obliged, announcing Nhleko’s planned departure and replacement, along with other director changes and a new separate group of prominent advisers. The PIC didn’t respond to a request for comment. A spokesman for Nhleko declined to comment on behalf of the outgoing chairman.
Interactions with the PIC have been at the board level, MTN CEO Rob Shuter said in an interview last week in London, where he was giving presentations to investors.
“I think they’ve wanted more clarity on the board evolution, which has now been announced. I think that was an important thing for them,” he said when asked about the company’s relationship and discussions with the PIC, without commenting on the specific changes on the board. MTN’s media office didn’t comment further.
The PIC was moved to act following a series of disputes in Nigeria, Iran and elsewhere, the people said, asking not to be identified as the concerns weren’t disclosed publicly. The biggest of those was a US$5.2-billion fine in Nigeria in October 2015, which was eventually settled for less than $1-billion after about eight months of negotiations.
The PIC, which manages the pension funds of South African government workers, wants the new chairman, former deputy finance minister Mcebisi Jonas, and the board to resolve outstanding issues such as a $2-billion tax dispute in Nigeria, the people said. MTN’s separate advisory board is a council of “wise old men”, who can directly contact lawmakers and decision makers in the countries where MTN operates, one of the people said.
The current board doesn’t have a Nigerian director even though that country is MTN’s biggest market by subscribers. From July, it will include Lamido Sanusi, a former Nigerian central bank governor who is now Emir of Kano, the second-most influential Islamic position in the West African country.
Jonas is set to take over as chairman in December, MTN said on 3 May. Vincent Rague, a Kenyan International Finance Corp veteran, is also joining.
The advisory board will be chaired by Thabo Mbeki, the former South African president who has mediated in a number of political disputes across the continent, and will include a former Ghanaian president, John Kufuor, and Mohamed Elbaradei, the one-time head of the International Atomic Energy Agency.
Nhleko, who is credited with playing a large part in building the company into a continent-wide giant with 221 million customers, will also sit on the advisory board.
A catalogue of disputes in MTN’s markets, which include nations at war in the Middle East and Africa, have depressed the share price and allowed Johannesburg-based rival Vodacom Group to surpass MTN in terms of market capitalisation. Since MTN disclosed that the PIC had a 26% stake on 29 November, the share price has gained 19% compared to a 6% decline for Vodacom. MTN’s stock fell 0.4% to R104.35 by the close of trade in Johannesburg.
October 2015: MTN fined $5.2-billion by a Nigerian regulator for not disconnecting 5.1 million subscribers that didn’t have proper documentation. While the penalty was eventually reduced to less than $1-billion it cost then-CEO Sifiso Dabengwa his job. The PIC, which held 13% of the company at the time, said the board should have taken more responsibility.
August 2018: Nigeria orders MTN and four banks to refund $8-billion in dividends that it said were illegally expatriated in the eight years through 2015. The company ended up agreeing to pay $52.6-million four months later.
September 2018: Nigeria’s attorney-general orders MTN to pay $2-billion in taxes it says are owed. The dispute is ongoing.
February 2019: South African police arrest a former ambassador to Iran on corruption charges related to the award of a mobile-phone licence to MTN after it was initially given to Turkcell. Turkcell has been taking legal action against MTN for several years.
February 2019: The head of MTN’s business in Uganda is deported over what the government there calls a “national security matter”. Three other executives were also deported. The CEO was cleared to return last week.
The PIC “need us to manage portfolio risk”, MTN chief financial officer Ralph Mupita said in the London interview in response to the same question. “As a company we operate in markets such as the Middle East and others, so how do we manage the risk that come with sanctioned markets and other issues.” — Reported by Antony Sguazzin and Loni Prinsloo, with assistance from Rebecca Penty, (c) 2019 Bloomberg LP