Etisalat Nigeria, registered as Emerging Markets Telecommunication Services (EMTS) Ltd, was majority-owned by United Arab Emirates-domiciled Etisalat Group and Mubadala.
The telco, with 21 million subscribers, was brought down by mountains of debt.
It owes a consortium of 13 Nigerian banks Sh124.4 billion ( $1.2 billion)—which it has failed to service, forcing them to take over its assets. All these entities have an interest in the company.
Fully aware of the divided opinion on if the State should be intervening in private economically significant businesses, I think Nakumatt warrants State intervention.
Authorities in Nigeria are currently struggling to save Etisalat, the country’s fourth largest telco. The Central Bank of Nigeria (CBN) together with Nigeria Communications Commission (NCC) are rushing to avert a creditors’ take-over.
Etisalat Nigeria, registered as Emerging Markets Telecommunication Services (EMTS) Ltd, was majority-owned by United Arab Emirates-domiciled Etisalat Group and Mubadala.
The telco, with 21 million subscribers, was brought down by mountains of debt. It owes a consortium of 13 Nigerian banks Sh124.4 billion ( $1.2 billion)—which it has failed to service, forcing them to take over its assets. All these entities have an interest in the company.
The NCC is acting to protect the interest of 21 million subscribers. The CBN, on the other hand, is acting to protect depositors’ interest and avert any potential systemic risks arising from default on these debts.
In fact, they have now kicked out the two UAE entities and taken full ownership of Etisalat. Why am I telling you this story?
It is because this analogy lays a ground for the State to intervene in the Nakumatt situation. I recently shopped in some once-bubbly Nakumatt outlet. The thin queues at the check-out tills scream desertion.
The staff, however, are still determined to instill some reassurance among the few trolleyed customers—despite probably not having received their previous end-month wages.
Without delving (deliberately) into the issues that have brought the chain to its knees, do we want to say that the State has no interests to protect in Nakumatt? I don’t believe so.
The Central Bank of Kenya (CBK), in its capacity as the chief protector of depositors’ interests, is such a major stakeholder in this. As at August 2016, the retail chain owed commercial banks a total of Sh13 billion-spread across 10 banks.
These are depositors’ money. A total default on the outstanding loans will not only leave depositors dry, but also risks exacerbating loan non-perfomance; and the sector, in my assessments, can’t afford any more exacerbation. The Retirement Benefits Authority (RBA) has pensioners’ interests to protect, making it a major stakeholder in this.
First, Nakumatt had borrowed short-term debts via commercial papers in the private market. This portfolio amounted to some Sh5 billion in 2016, slightly more than half of this portfolio came from institutional fund managers.
As you may know, institutional fund managers manage pension money—so there’s a group of pensioners who stand to lose out if the retail chain defaults.
Secondly, remittance of pension contributions to defined contribution schemes is also at stake here. At its peak, Nakumatt remitted about Sh200 million to defined contribution schemes.
They probably remitted a similar level in 2016. Do we want to say that such events shouldn’t unnerve the RBA? Give me a break. Finally, I would be running the risk of redundancy if I don’t mention Kenya Revenue Authority (KRA). At its peak, Nakumatt remitted to the Exchequer anything between Sh7 billion to Sh9 billion in value added tax (VAT) and a further Sh600 million to Sh700 million in payroll tax every year. These are not small time figures. While we constantly talk about missing tax collection targets, it is part of the exchequer’s business to ensure large remitters are healthy financially—and should, ideally, be at the heart of any business restructuring efforts.
Fully aware of the divided opinion on if the State should be intervening in private economically significant businesses, I think Nakumatt warrants State intervention. The intervention is debatable and may not necessarily mean putting tax-payers’ money into the chain.
