MTN Nigeria, Banks and CBN Action – An Update and Initial Commentary

MTN Nigeria, Banks and CBN Action – An Update and Initial Commentary

During the week, MTN Nigeria was sanctioned by the Central Bank of Nigeria (CBN) over allegations of impropriety in the repatriation of funds from Nigeria. Please find below highlights of the story:

  •    CBN’s Position:MTN Nigeria to refund $8.1 Billion worth of Dividends repatriated through conversion of shareholders’ loan to preference shares between 2007 and 2015 in violation of extant laws and regulations of the Federal Republic of Nigeria. This has also led to a fine totaling N5.86 Billion($16.3 Million) on 4 banks: Standard Chartered Bank- N2.4 Billion ($6.7 Million), Stanbic IBTC Bank - N1.8 Billion ($5 Million), Citi Bank - N1.2 Billion ($3.3 Million) and Diamond Bank -N0.25 Billion ($0.69 Million).
  • MTN’s response: Certificate of Capital Importation (CCI) for this dividend repatriation was duly approved by the Apex Bank. The Nigerian Senate had previously probed into the issue and the findings revealed that MTN Nigeria did not collude to contravene the foreign exchange laws hence there were no negative recommendations made against MTN Nigeria. MTN plans to engage with the relevant authorities and vigorously defend their position.
  • Responses from Banks involved:So far, only Diamond Bank Plc and Stanbic IBTC Plc listed on the Nigerian Stock Exchange (the other banks are privately held) has responded - both releasing statements about its financial stability despite the fine and that they are discussing with CBN to ensure the issue is resolved. Despite the Banks’ press releases, the share prices of both Diamond Bank and Stanbic IBTC came under pressure after the announcement of the sanction dropping by 11.5% and 10.3% respectively.
  • Investors’ reaction to MTN shares on the Johannesburg Stock Exchange: In similar pattern with the Banks, the Company’s share price lost over 17% and traded as low as 2009 levels
  • Possible implications:This may cause further delay with the planned MTN Nigeria IPO. However, we expect the stock market to stabilize as soon as we get more clarity from the CBN, MTN and the Banks on the issue.

This is to help people understand the issues surrounding the recent fine imposed by the CBN on 4 banks and the request that they should refund $8.1 Billion in "illegally repatriated" dividends.

This issue first come into the open in Sept 2016 when Senator Dino raised a motion accusing MTN of illegal repatriation of $13.92 billion to its parent company through 4 banks between 2006 - 2016 with the help of the Minister of Industry, Trade and Investment; Okey Enelamah.

The Senate then mandated its Committee on Banking, Insurance and other Financial Institutions to carry out a holistic investigation on compliance with the Foreign exchange (monitoring and miscellaneous) Act by MTN Nigeria & Others

The Minister of Communication Mr Adebayo Shittu warned the Senate “to Protect MTN and that the action could scare away investors while the Minister of Industry & Trade Dr. Okey Enelamah dismissed the allegations as baseless since he did not own any shares in MTN as alleged.

In one of the interesting testimonies, the CEO of MTN NG, Mr. Moolman admitted that it failed to comply with the law requiring issuance of CCI within 24hrs of conversion because it was a mere “administrative requirement”. I'll come to this later.

In Oct 2016, it was further reported (or was it rumoured) that the CBN had ordered the stop of dividend payouts to MTN NG. It seems that this was the first hint of an investigation by the CBN on this particular issue.

In Nov 2017, the Senate eventually cleared MTN NG of the allegation of illegally repatriating $13.92 Billion and also exonerated the Minister of Industry and Trade Dr. Enelamah of any wrongdoing. We thought the matter was closed. But we were wrong.

Fast Forward to 29/08/18.

The CBN revealed that four (4) banks have been fined over N5Bn for their role in the illegal remit of $8.1Bn dividend using “irregular” CCI in violation of the Foreign Exchange Act 1995 and the Foreign Exchange Manual. They were asked to refund the $8b.

What does the FX Act/Manual Say?

The act (and memorandum 22 of the manual) prescribes that any foreign capital imported into Nigeria for the purpose of investment must be converted to Naira within 24 hours of its arrival and CCI issued by the authorized dealer (Bank).

The Certificate for Capital Importation (CCI) can either come in form of Cash or it can come in the form of Equipment imported into the country. Either way, the requirements and process for the issuance is well spelt out in the Foreign Exchange act and manual.

So what is the CBN’s case against the banks and MTN NG?

According to the CBN, their investigation revealed the following:

  1. That MTN NG shareholders invested and imported $402m in MTN Nigeria between 2001 – 2006.  There seem to be no dispute about this from all parties.
  2. The CBN claims that the investment was carried out through the transfer of cash & importation of equipment evidenced by CCI issued by the 4 banks. This means that indeed CCIs where issued to confirm that MTN imported $402m into d country. No dispute here as well
  3. According to the CBN, the CCI issued by the banks showed that out of $402m, $59m was invested as Shareholders loan while $343m came in as Equity. How did the CBN know this? Because when CCIs are issued, you have to indicate whether it is for “Loan”, or for “Equity”.
  4. According to CBN, a review of the 2007 financial of MTN revealed that instead of Equity of $343m & shareholders loan of $59m, what they found was $2.9m Equity & $399m shareholders loan in accordance to their Shareholders agreement but not in accordance with the CCI. Is this unusual and evidence of fraudulent misrepresentation? Not really. The bank could have made a honest mistake of ticking the wrong box on the CCI even though this is very unlikely because they should have acted on instructions contained in MTN's board resolution.
  5. The CBN went further to say that following a request by SCB to convert the shareholders loan to Preference Shares, an approval-in-principle was issued by CBN subject to a final approval on the condition that –
  6. a)Implementation of decision in item 5B of their BR and
  7. b)An undertaking that no remittance will be made to the shareholder in form of interest/principal payments from the date of the loan to the date of the conversion. Was this undertaken implied or was it by writing? We don’t know. Whichever way, it seems SCB ignored it.
  8. Question: Why did the CBN feel the need to issue an approval in-principle? It was probably because the shares where to be converted to preference shares. Preference shares are shares that still ‘feels’ like a debt. When you think preference shares, think “Hybrid”. Now, this kind of conversion is not unusual but the CBN obviously saw enough in the MTN NG board resolution authorizing the conversion to make them want to wait for evidence of implementation of an item on that resolution before it gave its final approval.
  9. This is where it gets murky. The CBN claims that in spite of the non-fulfillment of the conditions it gave, MTN went ahead to convert the loans to preference shares and SCB issued CCI’s in respect of the ‘illegal” conversion. Note the use of the word "illegal".
  10. Sometime in 2009, the CBN queried SCB on the CCI issued on this “illegal Conversion”. SCB in a reply dated Dec 10 2009, acknowledged to the CBN that it was an “unintended omission”. Nonetheless, on account of this CCI, MTN was able to remit $8Bn between 2007-2015.
  11. Having concluded its investigation, the CBN ordered the banks to refund to it the $8.1Bn that was “illegally repatriated”. Does this mean that the money belongs to the CBN? No. The CBN is asking for return of its USD in exchange for the Naira MTN gave in return.
  12. Now this is where it gets interesting. Should the MTN return the $8.1 billion its shareholders collected and the CBN return back to them the Naira it got in exchange; it could lose up to N2Trillon in the process. Do the Math and compare the $/N rate in 2007–2015 to rate today.  At the end of the day, the real negotiation (and there will be a negotiation) will be about the justification of this differential and not the entire $8.1 Billion. Will it be a two-way negotiation between the banks and the CBN or a 3-way negotiation with MTN NG included? We wait.


  1. It's a "refund" not a "forfeit". If the trade of $8bn is executed, MTN NG will get back its Naira while the CBN gets back its dollars. Meaning that in actual fact, the refund is going back in the books of MTN NG.
  2. CCIs are issued by Banks and not the CBN. Are there consequences for this move by the CBN? Oh Yes! It'll make many investors to take notice. The reality is that many investors have always played fast and loose with the rules. You can't blame them. But u can't blame the regulator either when he decides to wield the stick.

I know for a fact that yesterday, there were indeed frantic calls from major capitals to their Nigeria CFOs to be sure they are on solid footing. It is also likely that banks will be more careful going forward to ensure compliance with the rules on capital importation.

It is instructive that compared to MTN NG, the reactions of the indicted banks has been relatively measured. It could well be that they don’t want to take on their regulator or it could also mean that they know that they’re in the wrong.

This movie is far from over. It is just getting started. This is not THE END.