The Central Bank of Nigeria (CBN) recently called out MTN, Nigeria’s largest telecommunications company, over repatriation of dividends, asking the telco to refund the $8.1 billion.
Four banks were fined N5.8 billion for allegedly issuing irregular certificates of capital importation (CCI) to the company which made the repatriation possible.
There seems to be some form of resolution in sight as the CBN is now reviewing the case based on fresh evidence.
TheCable presents a guide to the whole saga.
Let’s start by defining some terms.
Certificate of capital importation (CCI): This document is issued on evidence of foreign exchange import into the country. The foreign exchange might be in form of cash or equipment. Investors are required to sell imported forex to a bank within 24 hours and the bank issue a CCI within 24 hours too.
This document exists because:
- It helps the authorities track the volume of foreign direct investment that comes into the country
- The company uses it as evidence when it wants to take its capital or interest outside the country
Preference shares: This type of share entitles the owner to a fixed dividend in the company and the payment is taken as a priority over the dividend of ordinary shareholders.
MTN’s sins — according to the CBN
There is no dispute between both parties that MTN invested $402 million between 2001 and 2006. However, CBN claims that:
- In 2006, MTN listed the $402 million to mean $59 million as shareholder loan and $343 million as equity and got CCIs that stated these. A review of MTN’s financial statement at the end of 2007 showed that $399 million was invested as shareholder loan and $2 million as equity, which is contrary to what was stated on the CCIs.
- CBN said it granted an approval-in-principle for the conversion of the shareholder loan to preference share but did not grant a final approval for the conversion. According to the apex bank, the final approval would be granted based on the implementation of Item 5B in MTN’s board resolution and an undertaking saying MTN has not paid shareholders interest on the loan or started repaying the loan.
- The banks issued new CCIs stating that $399 million had become shareholder loan and it was on this basis that MTN repatriated $8.1 billion as dividends to shareholders between 2007 and 2015.
Why did they need to apply for CCIs to convert the $399 million to preference shares?
If the $399 million had remained a loan, MTN would only have been able to pay back the sum plus interest.
With the conversion, MTN could pay dividends, which was in this case, higher than the loan amount. So the company needed the new CCIs to bid for forex.
Why did CBN allow MTN to repatriate the money when it had not given final approval?
CBN said the banks used the approval-in-principle to issue new CCIs. During this period, CCIs were issued manually so it meant different departments within the CBN got different things.
“CBN works with information provided by the parties. CBN wouldn’t know the purpose for which capital is imported unless the owner through his or her bank says so,” the CBN responded to questions by TheCable.
The 2017 pardon
According to a letter seen by TheCable, CBN pardoned MTN on issues of remittances on equity-related certificates.
“We write to inform you that after a review of your submission, the suspension imposed on your company in respect of remittances/transactions on equity related certificates of capital importation is hereby lifted,” the letter read.
“Meanwhile, you are to ensure that you comply with extant regulations on all the transactions.”
The letter was signed by W.D. Gotring, CBN’s director for trade and exchange department, and copied the managing directors of the now affected banks.
When TheCable contacted the apex bank for further clarifications on the case, the CBN said its examiners discovered that the forex invested by MTN was sourced from the local market.
“By our regulations, only funds in-flowed into Nigeria qualify for the issuance of CCI. However, examiners observed that the forex regulations at the time of investment allowed Nigerians to purchase shares with foreign currency. So the transactions were not voided,” Godwin Emefiele, the CBN governor told TheCable.
“On the second allegation, the regulation provides that banks must issue CCIs for in-flowed funds within 24 hours. The examiners reported that the banks failed to issue some of the CCIs within 24 hours. This should attract sanctions.
“Again, the CBN decided to overlook this offence since the transactions took place over 10 years ago. This informed the CBN letter dated February 22, 2017.
“At the time this was done, the allegations bothering on converting a loan of $399m to Preference shares of $8.1 billion hadn’t been unearthed.”
How does this relate to senate investigation?
In 2016 when Dino Melaye, the senator representing Kogi West senatorial district, accused MTN of illegally repatriating $13.92 billion, the senate cleared MTN of the charges saying it “did not receive proofs of collusion to contravene the foreign exchange laws”.
Speaking on this, Emefiele said: “When our directors were summoned by the senate to provide the CBN perspective, they told the senators that the CBN had pardoned the offences and based on this, the senate also cleared MTN and the banks.”
So does the $8.1 billion belong to the CBN?
No, the money belongs to MTN. What the CBN is asking for is that MTN returns $8.1 billion to it and it will give MTN the naira equivalent. Here is our educated guess of the naira equivalent.
Average exchange rate over the years:
- 2007 = 124/$
- 2009 = 147/$
- 2012 = 157/$
- 2014 = 180/$
- 2015 = 197/$
An average of these figures is N161.8/$1. But since $8.1 billion was repatriated over eight years, we would also calculate the average at $1 billion per year.
If CBN uses N161.8/$, it means the bank would refund MTN N1.3 trillion as the naira equivalent. This is just an estimated figure by TheCable. The calculations will be done on actual basis — actual amounts and actual exchange rates at the time of each transaction.
One thing for sure — if MTN returns $8.1 billion, Nigeria’s foreign reserves will hit $52.1 billion, one of the highest ever.
What is MTN’s defence?
“All dividend repatriation done by MTN Nigeria to its shareholders was done on the basis of its equity capital and all the historic dividends were declared against valid equity CCIs and in fact, no preference dividends were declared and no interest in respect of these preference shares was paid,” Tobe Okigbo, MTN’s corporate relations executive, said in a statement released.
“This means that it is incorrect to suggest that the conversion of a shareholder loan to preference shares has any relation to the repatriation of dividends. The two are simply not connected and we are trying to understand this position that the Central Bank has taken.”
Simply put, MTN says the dividends repatriated between 2007 and 2015 were not for the preference shares. That means they committed no infraction.
CBN soft pedals — MTN’s shares rebound
On Wednesday, the CBN spoke about the sanctions in a softer tone. In a statement signed by Isaac Okorafor, its spokesman, the apex bank said it is reviewing the sanctions placed on the telco and four banks.
“In response to the recent regulatory actions, the Banks and MTN are engaging the CBN and have provided additional information which is currently being reviewed with a view to arriving at an equitable solution,” the statement read.
In response, MTN’s shares, which had initially dropped to a nine-year low on announcement of the sanctions, rose by five percent on the Johannesburg Stock Exchange.