Shanduka, MTN deal highlights SA scramble for solace in Nigeria market

Patrick Atunaya & Ben Uzor Jr

South Africa strategic investment drive into Nigeria is continuing apace with the purchase of a further $335 million stake in MTN Nigeria by Shanduka Group, the investment holdings group controlled by Cyril Ramaphosa, businessman and chairman of JSE-listed mobile phone group MTN. Analysts say it is an indication of the scramble among South Africa investors to seek solace, amid the European crisis, while at the same time increasing their intra Africa investment drive. “The intra Africa investment drive is a strategic effort underlined by their competitive advantage,” Bismarck Rewane, chief executive officer, Financial Derivatives, told Benuzorreports.

In the past few years, South African firms have been moving fast to tap into Nigeria’s huge consumer market. Last week Rand Merchant Bank, South Africa’s second-largest financial company, got a license to operate as a merchant bank in Nigeria. The minimum capital base for merchant banks is N15 billion ($952m). In September, Tiger Brands, another South African company in the foods business, bought 63 percent of Dangote Flour. The company has lately said it would raise its shareholding to 70 percent.

Rand Merchant Bank, in its 2012 report: Where to Invest in Africa, observed that Nigeria, “has the most favourable macroeconomic backdrop for sumption spending  growth.”

Nigeria’s population and pent up demand for goods and services makes investment case. From mobile phones (Nigeria’s is the largest), unbanked population (36 percent of SSA’s unbanked population are Nigerians) The latest move by Shanduka Group Ltd whittled down Nigerian ownership of MTN Nigeria to about 18 percent. MTN Nigeria, with over 45.6 million subscribers and an estimated market share of 48 percent, is the largest subsidiary of the MTN Group, Africa’s largest mobile network operator, and contributes about 30 percent of MTN group’s earnings. Shanduka Group stake makes it the third largest shareholder in MTN Nigeria. “Nigeria is the most populous country on the continent and is an important market from a consumer perspective,” said Shanduka Chief Executive Phuti Mahanyele.

The investment firm declined to say exactly how much it owns of the Nigerian unit, purchased from three private investors including private equity company African Capital Alliance. Benuzorreports analysis of the investment, however, shows Shanduka Group stake amounts to about 3.1 percent of MTN Nigeria, with the MTN Group valued at $36 billion and the Nigerian business alone valued at $10.8 billion. The investment leaves the South African telecommunication company (MTN Group) with 78.8 percent ownership of MTN Nigeria, the second-largest shareholders are a group of Nigerian shareholders at 18 percent, while Shanduka Group has a 3.1 percent stake.

MTN Group in a 2007 private placement, sold a total of 43,024,602 “MTN Nigeria linked units” or shares at $24.56 per unit, intended to raise the Nigerian ownership of MTN Nigeria to 21.4 percent. It was learnt that Standard Chartered alerted Shanduka Group to the opportunity and also helped finance the purchase through debt and equity. But the deal according to the newspaper report, raises questions about corporate governance and a potential conflict of interest. The concerns stem from Ramaphosa being the chairman of the MTN Group, of which MTN International is a subsidiary. The $335m deal was Shanduka’s largest-ever investment outside of South Africa, its CEO Phuti Mahanyele said. She insisted that the deal was above board and that Ramaphosa was not directly involved in negotiating the deal.

“It was not an exclusive deal, but was put out into the open market,” Ms Mahanyele said. “The shareholding in MTN Nigeria is held by MTN International and (Ramaphosa) sits on the board of the (holding) group and was not involved (in the negotiations). “ A telecoms industry executive, who asked not be named, said it was difficult to imagine that Ramaphosa would not have been aware there were investors in MTN Nigeria who wanted to sell their stake. A corporate governance expert, who also asked not to be named, agreed that the deal raised questions. “Shanduka should not be anywhere near MTN, end of story,” the second source said. “Ramaphosa should be aware of the conflict of interest.” MTN Group has refused to comment on the deal. The stake was purchased from three private investors.