$125m Loan Default Threatens Smile Communications’ Operations

Emma Okonji
Smile Communications, the broadband company which emerged as the reserved bidder in the sale of 9mobile is currently battling with a loan default of $125 million, THISDAY has gathered.

According to reliable sources, Smile Communications got the loan from Afrexim Bank, and routed the loan through a syndicate of local banks.
The loan, it was gathered, was sourced to help fund the company’s infrastructure expansion plans.

According to the sources, the loan was structured so that it could be disbursed in tranches based on the attainment of critical milestones, including certain increases in active subscriber numbers.

While some tranches have so far been released, the local Banks are wary of releasing the last tranche of the $125 million loan to Smile Communications, given its poor default on the loan repayment terms.

The bank is now faced with the dilemma that withholding the balance of the loan could jeopardise Smile’s operations, while on the other hand, disbursing the entire loan could increase its exposure to the telecoms firm.

Smile Communications obtained its operating licence from the Nigerian Communications Commission (NCC) in 2009, and in 2014, launched its 4G/LTE network, covering eight cities, which include Lagos, Abuja, Port Harcourt, Ibadan, Benin-City, Kaduna, Onitsha and Asaba.
In addition to mobile broadband, it enables voice calls and video calls.

Incidentally, in the wake of the near foreclosure of the erstwhile Etisalat, Nigeria’s fourth largest GSM company by subscription, Smile Communications was one of those companies which actively showed interest in buying up the telecoms company.

9mobile had defaulted in the repayment of a loan of $1.2 billion to a consortium of Nigerian banks sometime last year.

To forestall foreclosure and the consequent loss of jobs and potential systemic risk to the larger telecom industry, the banking regulatory authority, CBN and its telecom counterpart, NCC, swiftly intervened to save the company.

They prevailed on the banks to suspend their foreclosure bid and engaged a third party, Barclays Africa, to help seek a willing buyer for the ailing company now renamed 9mobile.

The process of acquiring 9mobile is ongoing, with Teleology, a company promoted by telecom industry veterans as the preferred bidder.
The veterans include the former CEOs of MTN Nigeria, Mr. Adrian Wood and Michael Ikpoki, as well as another former CEO of MTN in Ghana and Nigeria respectively, Demola Eleso, and others.

Teleology was declared as the preferred bidder for 9mobile after making a bid that surpassed that of the reserve bidder, according to sources at Barclays Africa. Under the terms of the deal, Teleology was required to pay a non-refundable fee of $50 million within 21 working days.

Teleology was able to pay the non-refundable fee before the expiration of the deadline, to clinch its position as the preferred bidder, a situation that raises the hope that the company should be able to pay the entire bid price within the agreed deadline.

Smile Communication, on the other hand, is said to have bid $300 million to emerge as the reserve bidder.
Other contenders such as Globacom, Airtel and Helios declined to participate in the actual bid process.
The Executive Director, Smile Communications, Ahmad Farroukh had said that Smile Communications “has all it takes to reposition 9mobile and make it attractive and competitive again, within 90 days,” if given the opportunity to acquire 9mobile. He assured that the company would inject “fresh millions of dollars from foreign financing outside Nigeria into 9mobile to pay off its indebtedness to the banks and any other group the company is indebted to, and we will still have enough to invest in 9mobile and make it competitive.”
Furthermore, he assured that Smile Communications would apply to the NCC to make its current 800MZ spectrum available to 9mobile, in so doing, boosting its capacity.

Industry analysts have however said the current developments pertaining to the unresolved loan have now put a question mark on the rationale of this bid by Smile Communications.
The analysts are therefore asking “why would Smile bid to acquire 9mobile despite the precarious situation it is currently in.”
If it is currently in dire financial straits, how did it plan to raise the $300 million, which it bid for 9mobile, they questioned.
Smile Communications was founded in 2007 and incorporated in Mauritius.

Besides Nigeria, it currently has operations in Uganda, Tanzania and Democratic Republic of the Congo.
Its key executives are Irene Charnley who is the founder and CEO, Venesa Naidoo, the Chief Financial Officer and Ahmad Farroukh, Executive Director, Operations.
Its partners include Government Employees Pension Fund of South Africa, Verene Group of South Africa which is a group of black South African women social entrepreneurs, as well as Capital Works Group, a South Africa based independent alternative asset management firm.
It remains to be seen, how Smile Communications will resolve its current debt situation with the Banks and what fallout this may have on its operations in Nigeria and elsewhere, analysts said.