EDITORIAL: MTN’s reputation at risk in Middle East
Investors will welcome the telecoms firm selling its assets and getting out of war-torn countries
If anything should give CEO Rob Shuter and his executive team at MTN an incentive to step up the disposal of assets in war-torn and unstable countries, it is the lawsuit brought by families of US troops killed or wounded in the battle with the Taliban in Afghanistan.
Over the weekend, the lawsuit — filed in December 2019, accusing several companies including MTN of fuelling attacks on the US troops by paying the Taliban for protection of their assets and staff — was amended to include almost 100 more American soldiers killed or injured at the hands of the group.
MTN, whose image as one of SA’s biggest postapartheid success stories has been tainted by clashes with regulators in some frontier markets elsewhere on the continent, is in the middle of slimming down its portfolio including pulling out of volatile countries.
The company makes just over 4% of its R64.1bn annual core profit, or earnings before interest, tax, depreciation and amortisation (ebitda) in the Middle East and North Africa, a region that comprises tense countries such as Sudan, Yemen, Iran, Syria and Afghanistan.
MTN entered Afghanistan in 2006 through the acquisition of Investcom, a Lebanese company. It is now among the top two players in that country’s telecom industry. But this lawsuit, though its merits have not been tested, threatens not only its profits but also its reputation, shrinking the pool of investors in its equity and bonds.
The plaintiffs are families of more than 200 American soldiers and contractors killed and wounded in Afghanistan, which the US invaded in the early 2000s to topple the Taliban, which it said had provided a safe haven from which al Qaeda planned the September 11 attacks.
The lawsuit paints a picture of a contracting environment in which money flowed from a company to multiple subcontractors, some of whom funnelled payments to the Taliban to help its ally al Qaeda assemble resources and launch insurgent attacks on US soldiers.
It is not the first time MTN has had to defend its position over its businesses in lucrative but risky frontier markets. It agreed to pay more than $1bn (about R17bn in today’s money) to settle a dispute with Nigeria over SIM card registration in 2016, before coughing up $53m to end a dividend repatriation row in the West African country two year later.
A $4bn lawsuit brought by Turkish mobile phone group Turkcell, which accuses MTN of using bribes and corruption to win telecom licence in Iran, is stuck in procedural wrangling.
MTN, which has filed a motion to have the Afghanistan case dismissed on grounds that the US lacks jurisdiction over its business and that the complaint contains unsubstantiated allegations of wrongdoing, maintains its business practices are above board.
The company plans to file another motion to dismiss the amended version of the suit.
It might be that the plaintiffs have sued the wrong company in the wrong court, but the case should instil a sense of urgency to exit problematic markets like Syria, where President Bashar al-Assad has waged a brutal civil war against his enemies and allowed his friends to profit from it.
Considering the destruction of shareholders’ equity over the past few years, partly because of run-ins with authorities and lawsuits, it is hard to make the case for keeping some of these businesses any longer than it is necessary.
Shares in MTN have dropped by more than three quarters from their peak in 2014, casting a shadow over Shuter’s laudable diversification efforts aimed at helping the company shake off the shackles of being regarded as a stock with a limited growth outlook.
Kenyan rival Safaricom is now behind Morocco’s Itissalat Al Maghrib and Vodacom as Africa’s third biggest mobile telecom group despite MTN boasting over seven-times more users.
Fast-tracking MTN's exit from some of these markets would be good news for investors, who have watched in dismay as executives took their eyes off the ball to deal with regulatory breaches and lawsuits.
Would you like to comment on this article or view other readers' comments?
Register (it’s quick and free) or sign in now.
Please read our Comment Policy before commenting.