BusinessDay:
By TIM COHEN: Analysts are looking at MTN’s exposure in Nigeria and Iran, but it may not be as bad as some think even though the share dropped 8% in two days, A CONSEQUENCE of MTN’s expansion in Africa has always been some residual fears about political risk, and these appeared to come home to roost last week when two of its most critical markets hit political headwinds. Yet analysts are still trying to assess the nature of those risks in two very different situations in Nigeria and Iran, and the results may not be as bad as they appear at first blush. However, the fact that they had such a marked result on MTN’s share price, which dropped 8% in two days last week, means its management will start the year with an extra curved-ball to deal with. MTN’s share price did rebound somewhat on Friday, and even after the fall, it is trading at about the same level it has been on for the past year. On Friday it closed 4,19% higher to R136,25. But this was no storm in a teacup for MTN, because the different problems in Iran and Nigeria will probably take some time to play themselves out. One illustration of this fact is that last week, the volume of MTN shares that changed hands was enormous — almost four times the normal level. Clearly, investors are focused on the stock. Another illustration is that since August, a substantial 20% gap has opened up between MTN and its main competitor in the South African market Vodacom , which appears to be attracting a bigger slice of the local institutional market. The problem in Nigeria is partly financial and partly political. The Nigerian government has decided to scrap the subsidy on fuel, mainly because the subsidy distorts the market and has made refining fuel uneconomic. The result is that despite being a big oil producer, Nigeria is a net petrol importer, and the Nigerian government is attempting to introduce free-market reforms for reasons of economic efficacy. The subsidy programme in Nigeria has intensified over time, and currently the pump price of petrol in Nigeria is 65 naira — about a third of what South Africans pay for fuel. By scrapping the subsidy, the Nigerian government is effectively doubling the price of petrol, and the obvious problem for MTN is that taking this slice out of disposable incomes may reduce cellphone usage. In Iraq, the political situation for MTN is much less calculable. The fear for MTN investors is that if US-Iran relations really deteriorate, not only will the economy weaken, but the US may place restrictions on companies that invest in Iran which may prevent US investors from buying MTN shares. This is considered a low probability, but at times of political flare-ups — as there were last week partly following comments made by Republican presidential contenders hostile to Iran — MTN tends to take a knock.
Source: BusinessDay 
