The last few weeks have seen a rather unpredictable series of developments in the on-going CBN versus MTN dispute on capital repatriation. Initially, a series of placatory statements by the Central Bank Governor indicating a less confrontational approach to the issue provided some calm to the market. Those hoping to see a more mature and professional process of dispute resolution were encouraged that the government was recognising the impact that the dispute was having on wider investor confidence, and taking steps to ensure a fair hearing was provided that would rebuild market confidence.
Then according to reports, on Thursday, October 4th the CBN legal team took a different track. Their response to MTN’s request for injunctive relief was aggressive, to say the least. The demand for 15% interest on the $8.1 billion refund from the date of the request being made until judgement and then 10% until completion of payment. Given the pace of Nigeria’s protracted legal process, a negative finding on these terms would increase the impact on MTN materially and the media and markets interpreted as such.
Capital markets can be fickle. They react to sentiment and crave predictability. Two contradictory messages in one week caused consternation amongst shareholders, who were already jittery.
Following the original sequence of allegations by the CBN and AGF’s office, MTN’s share price had plummeted by 36%, wiping out $4.9 billion of shareholder value. When the CBN publicly indicated a more conciliatory approach to negotiations the shares staged a mini-recovery, gaining 14%, but the CBN’s legal action spooked the market again, delivering a further 6.4% reduction in share price when markets opened on Friday, October 5th.
Perhaps recognising that the legal stance taken by the CBN was not in line with his more conciliatory approach, the CBN Governor then spoke to a range of local and international media. He told them that the evidence that MTN and the banks had provided made it likely that the sanction would actually be reduced from $8.1 billion and seemed to indicate that it could be reduced to zero.
South African media have screamed ‘regulatory schizophrenia’ and it is hard to argue that this does not have some justification. MTN’s poor shareholders must be close to suffering emotional breakdowns. Their response to the CBN’s ‘assurance’ was far from positive. A further 4% was wiped off MTN’s value. Not because the CBN’s message was unsupportive of MTN’s cause, but because the short history of contradictory actions made them unsure about the actual direction of travel the CBN was following. The graph below shows the reaction of MTN’s share price during this process. As at today, shareholders continue to be $3 billion worse off than when this started.
So what does the CBN’s most recent position on the issue actually mean? The Governor has publicly indicated that evidence provided by the banks and MTN will certainly reduce the size of the potential ‘refund’ and could go as far as removing the need for it at all. This begs a number of questions. What evidence has been provided that was not originally available to the CBN before it took action? Isn’t it the CBN’s responsibility to act only once it has all the facts? Or did the CBN act without knowing everything? Is it possible that the CBN, which announced the sanction publicly, at the same time as notifying MTN and the banks, has acted on inaccurate information? If they have, what then for MTN’s shareholders who have lost value? Who can they turn to? If the CBN really has made a mistake, will it be big enough to apologise to the people who have lost billions? If they do not, what confidence will other investors have in the integrity of the regulator and its leadership and by extension the Nigerian investment story?