MTN pounded by Iran, KT Corp speculation
Iran has plagued mobile operator, MTN Group (MTN) in 2012 – to the extent that the group has shaved more than R16 rand, or 11%, off its share price since early January 2011.
On Monday (April 2, 2012), shares in MTN declined as a much as R7.02, or 5.2%, to R128 on the JSE, before ending the day 3.87% off at R129.80, having traded at about R144 at the start of the year.
Trouble in Iran began in January, when the US Congress granted President Barack Obama the power to impose sanctions on Iran over its nuclear programme – with additional countries and territories following suit, including the EU.
That was exacerbated on Thursday (March 29, 2012), when Turkish mobile operator Turkcell, which has been battling MTN over the Iranian licence, launched a $4.2 billion lawsuit in a US court accusing MTN of bribing its way to the Iranian licence.
Turkcell is seeking damages over the award of the cellular licence in Iran in 2004.
MTN said it would oppose the claim filed in the US federal courts.
MTN’s operations in Iran account for a large chunk of subscribers and potential revenue. In audited results announced last month, for the year ended December 2011, MTN said that Irancell delivered a sound performance, increasing its subscriber base by 16.6% to 34.7 million in a market where penetration is above 100%.
Overall, MTN grew its subscriber base by 16.2% to 164.5 million.
Investor concern
A dealer at financial services company, PSG Konsult, noted that a potential hit of $4.2 billion would mean R32 billion in rand terms, “a huge chunk of money. It represents 12% of MTN’s market cap. It’s a hefty amount.
“This has, without doubt, put pressure on the group’s share price this morning, along with the general uncertainty surrounding the matter,” the dealer said.
KT Corp pressure
Analysts also argue that a potential deal between Telkom and KT Corporation (Korea Telecom) may result in high-volume, low-margin broadband products in South Africa, putting pressure on the margins of other operators like Vodacom and MTN.
KT Corp, South Korea’s largest telecoms company, recently completed due diligence on Telkom, ahead of a planned stake purchase.
In October 2011, KT Corp announced that it planned to acquire a 20% stake in Telkom in a deal worth R3.8 billion.
Hlelo Giyose, chief investment officer at First Avenue Investment Management said that KT Corp is known for its low-cost broadband services in Korea.
Giyose argued that KT Corp will import their low-margin and low-return model to South Africa, which is good news for consumers, but bad news for shareholders.
Giyose added that KT Corp’s entrance into South Africa will be very disruptive in the local telecoms market, forcing Vodacom and MTN to relook their business models around data.
A dealer at Thebe Stockbroking said that a number of question marks hung over MTN, with that uncertainty weighing on investor sentiment. “We usually see a case of buy on rumour, sell on fact, but the opposite appears to be in play at the moment, where investors are selling on rumour, and buying on fact,” he said.
Interestingly, at close on the JSE on Monday, shares in Vodacom (VOD) advanced 32 cents to R108.50, seemingly untroubled by any KT Corp talk.
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