Airtel Africa expects fresh blow to financial performance amid Nigeria’s forex market reforms

Airtel Africa has expressed fears that the ongoing reform of the Nigerian foreign exchange regime could impact its financials.

For a corporation that has already seen revenues taking a hit of $22 million and finance costs (excluding derivatives) spiking by $7 million from the dollar exchange rate before the reforms, new pressures from the push might affect performance in the short term.

In addition to the phasing out of the costly fuel subsidy regime, President Bola Tinubu has shown commitments to a policy reset in the nation’s forex market by closing the spread between the official and the parallel market rates.

Airtel Africa, the continent’s unit of New Delhi’s telecommunications titan Bharti Airtel, is the biggest company in Nigeria by market value, currently worth N4.8 trillion ($7 billion).

The wireless operator announced Tuesday that besides revenues, finance costs and earnings before income tax, depreciation and amortisation (EBITDA), its investment in derivatives will be affected by the shock.

“The direct impact of 1% devaluation in the Nigerian naira on derivative instruments held by the Group would have a negative impact of approximately $1.5 million,” Airtel said in a note.

In London, the company’s share price had dropped 2.4 per cent by 14:30 West Africa Time, following the news.

However, it remained stuck to the spot at which it closed the previous day in Lagos, where the stock is also quoted, and priced at N1,289 per share.

Airtel assured, in the document seen by PREMIUM TIMES, that “USD component of operating costs within the Nigerian business is minimal,” with no effect expected on EBITDA margin.

Net debt to underlying EBITDA, a key consideration for investors and a company’s potential buyers, was 1.4x as of the year ended 31 March, 2023.

The new administration in Nigeria last Monday allowed the naira to crash by 29 per cent to the dollar as part of the measures targeting parity between the official and black market exchange rates, having widened by close to 60 per cent over the years.

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That policy shift is at the core of President Bola Tinubu’s grand plan to lure investors back into Africa’s largest economy, where years-long illiquidity in the official foreign exchange market has kept them at bay.

Free of government controls, the market is now liberalised to determine the price by itself, Bloomberg said on Monday, citing an interview with Kingsley Obiora, a central bank deputy governor.

Airtel stated its optimism that merging the exchange rates into one will bolster liquidity and soothe the pain of dire dollar shortage in the market in the last few years.