MTN Group Ltd. plunged the most in nearly 17 years after the Nigerian telecommunications regulator fined Africa’s biggest wireless company $5.2 billion for failing to disconnect customers with unregistered SIM cards.
The movements came as another major South African multinational, Standard Bank Group, Africa’s largest lender by assets, saw directors of its local Nigeria unit suspended—including its chief executive officer and chairman, after they were accused of posting misleading statements over two years.
MTN’s stock declined more than 12%, the biggest one-day decline since November 1998, to 167 rand. That’s the lowest closing price since June 2013 and values the Johannesburg-based company at 308 billion rand ($23 billion). MTN was the biggest decliner in percentage terms on the benchmark FTSE/JSE Africa All Share Index, while also weighing more on the gauge than any other security on Monday.
The penalty relates to the timing of the disconnection of 5.1 million MTN Nigeria subscribers in August and September and is based on a fine of 200,000 naira ($1,005) for each unregistered subscriber, Johannesburg-based MTN said in a statement on Monday. MTN Nigeria is in talks with the Nigerian Communications Commission to resolve the matter, the company said.
The magnitude of the penalty “is way, way higher than the profits they’re going to make from Nigeria for many years to come,” Wayne McCurrie, a Pretoria-based money manager at Momentum Asset Management, which owns MTN shares, said by phone.
“That fine is totally and utterly out of proportion to whatever regulation they are contravening, if any. That’s an astonishing amount of money.”
MTN, which has about 233 million customers in 22 countries in the Middle East and Africa, cut its full-year forecast for subscriber numbers on October 22 after the 5.1 million Nigerian customers were disconnected following a review into how they were able to register for phone contracts.
Nigeria is the company’s biggest market, with about 62 million customers at the end of September.
“We acted within our mandate as a regulator,” Tony Ojobo, head of public affairs at the NCC, said by phone. “It is only MTN for which we have been able to establish clear infractions. 5.2 million SIMs had to be forcefully disconnected by the NCC.”
‘Emerging market risk’
The NCC had ordered all mobile phone companies to register their customers’ SIM cards by August or face sanctions. MTN competes with Emirates Telecommunications Group Company PJSC, Bharti Airtel Ltd. and Glo Mobile in Nigeria.
“Events like this, even if the final outcome is a lesser fine, still highlight the unmanageable risk of doing business in highly regulated industries in emerging markets,” James Faircliff, a money manager at Tower Capital Management (Pty) Ltd., in Johannesburg, said.
Tower, a South African hedge fund manager with the equivalent of $185 million in assets, views the current drop in MTN’s share price as an opportunity to start taking profits on short positions it has on the stock, he said.
“Our negative investment thesis still remains,” Faircliff said. “We feel that uncomfortable relations with the Nigerian regulator could pose added risk to the pending license renewals in that country. Telcos and resources companies can often get a raw deal.”
On Monday, Nigeria’s Financial Reporting Council ordered the suspension of four past and current Stanbic IBTC Holdings Plc directors.
CEO Sola David-Borha and Chairman Atedo Peterside were the two current directors of the unit of Standard Bank Group Ltd. to be suspended, the regulator said in a statement on its website on Monday.
The FRC is investigating to establish the “extent of their negligence in the concealment, accounting irregularities and poor disclosures” in the company’s financial statements of 2013 and 2014.
Stanbic denied the charges.
The Lagos-based company’s directors have been directed to withdraw the annual reports, the FRC said in the statement.
The regulator also asked Nigeria’s Securities Exchange Commission to “consider withholding her authorisation of any request made by Stanbic IBTC” on its rights issue until those statements are corrected.
The Nigerian SEC suspended Stanbic’s proposed share sale in September as the FRC began an investigation into the company’s financial statements. The company received approval in June to issue 800 million shares, after announcing plans a month earlier to raise 24 billion naira ($121 million) of equity.
The allegations are inaccurate and Stanbic “does not agree that its accounts are defective or require rectification,” the bank said in a statement e-mailed by spokesman Usman Imanah, adding that a legal case was ongoing.
“The directors of Stanbic IBTC have not been ousted.” Stanbic’s shares fell 5% to 21.85 naira by the close of trading in Lagos, dropping the most in more than two months.