Iran deal make-or-break for MTN’s expansion plans

JOHANNESBURG — Efforts by Africa’s biggest cellphone company MTN to become the leading operator in emerging markets hinge on a major deal in Iran and failure there may force it to scale back its ambitions and return cash to shareholders.

By (Reuters)

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Published: Fri 7 Oct 2005, 12:15 PM

Last updated: Thu 2 Apr 2015, 5:32 PM

South Africa-based MTN has won approval from investors in recent years thanks to its dominance in the fast-growing Nigerian market, but subscriber growth is starting to slow and the company must diversify its earnings to keep revenues rising, say analysts and investors.

Analysts said MTN’s expansion strategy may hinge on a long-running battle with Turkcell for a stake in a $2 billion project to run Iran’s second mobile operator.

Winning the Iran deal would give MTN access to a huge market with major growth potential, as well as a long-coveted foothold in the Middle East, positioning it well for future expansion.

“South Africa is saturated and Nigeria is not going to keep growing forever -- the next leg of growth has to come from a new market,” said Gavin Joubert, portfolio manager at Coronation Fund Managers, which holds a negligible stake in MTN.

MTN aims to become the leading cell phone company in developing markets and industry sources say it has approached virtually every operator in Africa and the Middle East for talks, yet it has still failed to seal a big acquisition.

And with soaring demand for scant emerging market operators and licences as cash-rich Arab and European companies hunt for growth, MTN -- Africa’s biggest operator by revenues -- may struggle to compete.

“The demand for these assets is unbelievable at the moment,” said London-based Citigroup telecoms analyst Rhys Summerton.

“The chances of getting a good deal are very slim and (MTN) may end up overpaying...they are up against all the Gulf operators with plenty of cash so it may be very difficult.”

Several recent deals have underlined booming demand for emerging market assets: Kuwait’s MTC paid a hefty premium for Africa’s Celtel earlier this year and Tunisia said last week 14 Middle Eastern and European operators were lining up in an auction for a stake in Tunisie Telecom.

Middle Eastern telecoms company Investcom leapt 14 per cent on its London trading debut yesterday.

MTN’s ambitions in Iran could now hold the key to its expansion strategy.

Iranian officials said this week MTN had made around $320 million available to pay for the licence, indicating the South African firm may have muscled Turkcell into second place.

Shares in the South African company leapt to an all-time high last week amid speculation it would clinch the lucrative contract, but the company has declined to comment and Teheran has not confirmed the deal is done.

“Depending on the price and the terms, I would probably upgrade the stock on success in Iran,” said one analyst.

But defeat in Iran could leave shareholders clamouring for cash and force MTN to abandon its global ambitions after a string of failed bids.

“Iran is really crucial,” said one Johannesburg-based telecoms analyst who asked not to be named. “If they do not get this one then they may have to return cash to shareholders.”

MTN was trumped at the 11th hour by MTC in its bid for Celtel this year and industry sources say it walked away from talks with Egypt’s Orascom and Investcom over price.

Analysts say MTN must either raise its game by paying more for potential acquisitions, or return cash to shareholders and settle for more pedestrian growth until demand for assets eases.

Joubert said that at over 10 times next year’s earnings, the stock was looking overvalued compared to its closest peer Telkom -- South Africa’s fixed line operator which controls MTN’s main rival Vodacom -- particularly if it fails in Iran.

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