Billionaire’s N70 Debt: NCC Worries About Telecommunications Finance
… Think about a new capital structure for traders
The telecommunications regulator, the Nigeria Communications Commission (NCC), has expressed concerns about the financial situation of telecommunications companies in the country. According to the commission, a review of the financial situation of telecommunications companies showed that some of them do not have good financial conditions.
The audit, which was triggered by persistent interconnection arrears, which the regulator said rose to NOK 70 billion. Last year, it will reveal the true status of operators, which will lead to an increase in debt in the sector. “The Commission recently conducted an analysis of the financial health of its licensees as a result of the systematic crisis that some of them have faced, mainly related to huge debt and a huge shortage of shareholders’ funds.
“The survey results raised concerns and highlighted widespread problems related to capital structure and unacceptable debt and equity ratios in a significant number of licensees. “This requires a mechanism to proactively set parameters and monitor compliance; it is both an imperative and a necessity to protect the market, ”says a Commission document proposing a new capital structure for operators.
At the end of last year, NCC executive vice president prof. Umar Dunbatta urged telecom operators to pay off huge interconnection debts, stressing that this issue must be resolved in the general interest of the industry. Dunbatta said that “the estimated over $ 70 billion in interconnection debt is a major challenge to infrastructure expansion and impedes the healthy competition” needed to foster Nigeria’s digital economy.
Meanwhile, the regulator said there is an urgent need for a new capital structure for telecommunications companies to prevent an industry collapse. According to the document entitled: “Consultation Document on Determining Capital Structure for Licensees in the Telecommunications Sector in Nigeria,” in March 2020, the Commission established a committee to review the existing capital structure in the sector and determine whether any benchmarks or parameters should be established.
The committee reportedly carried out a technical analysis of a sample of active licensees, broken down into 15 license categories. “It is clear from the results of the technical review that the commission must act in a timely manner to prevent a systematic and sectoral collapse and its possible impact on the economy and national security of Nigeria. Obviously, the result of the technical review of the selected licensees confirms the need for a consultation process that will facilitate the identification of the ideal capital structure that will protect and support the communications sector in Nigeria, ”the commission said.
The Commission said it intends to establish an optimal capital structure for its licensees, such as a debt-to-equity ratio that provides the lowest weighted average cost of capital. “To optimize its capital structure, the licensee can issue more debt or equity capital, and the newly acquired capital can be used to invest in new assets / infrastructure, or can be used to buy out currently outstanding debt / capital, for example in the form of recapitalization … …
“While there are many contextual issues related to the definition of the capital structure, the committee focuses on investment, equity financing and the debt-to-equity ratio of all of its licensees. Thus, capital structure in this context refers to the proportions or combinations of equity capital, preferred capital, bonds, long-term loans, retained earnings and other sources of long-term funds in the total capital that the licensee will have. collect to manage your business, ”the document says.