MTN Shares Crashes in South Africa Exchange

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Shares of MTN Group Ltd., the mobile-phone operator fined $5.2 billion by
Nigerian regulators, fell the most this week since 2010 after a rout that wiped
almost 20 percent off the company’s market value. Bond yields soared to a
record. According to a Bloomsberg report the stock of Johannesburg-based MTN
MTN’s shares tumbled 17 percent since Monday. The shares advanced 2.2
percent to 157.80 rand at the 5 p.m. close in city, rebounding from a three-
year low. Yields on MTN’s $750 million of bonds due November 2024 soared
29 basis points to 5.88 percent, bringing the gain this week to 117 basis points.

The company on Oct. 26 issued a statement a day after a news report in
Nigeria’s Technology Times saying MTN is being fined for failing to disconnect
customers with unregistered SIM cards. MTN is in talks with Nigerian
authorities regarding the fine and also with officials at the Johannesburg
Stock Exchange on the timing of the announcement over the regulatory action,
the company said on Friday. The company’s 14-day relative strength index fell
as low as 29.4 on Thursday, below the 30 level that signals to some analysts
that the stock is oversold, for the first time since Aug. 27.

“The rules state in technical analysis that after any too quick, too steep price
action, then you’ll most likely see a counter-trend,” Peet Serfontein, a
technical analyst at Nedbank Capital, said by phone from Johannesburg. “The
overall trend is still down; what you’re seeing now is pressure relief.”
Nigeria’s Economy Slows Down Over Curency Wahala

Nigeria’s economy is growing at the slowest pace this decade as oil prices drop.
Companies are complaining they can’t get the dollars they need to do business.
And trading in the naira has long since dried up.

There are many good reasons why Godwin Emefiele, who runs the central

bank of Africa’s biggest economy, should lift currency controls and let the

naira depreciate. One of the things holding him back is politics.

Devaluing the naira may give opposition parties the opportunity to claim that

Emefiele’s main supporter, President Muhammadu Buhari, has lost control of

the economy. With his backing, the policy chief will be able to resist his critics

into 2016 before the worsening economic slump eventually for
ces him to

capitulate, according to Standard Chartered Plc and Bank of America Corp.

“They could probably hold out for at least six months, maybe even a year,” said

Ayodele Salami, chief investment officer for London-based Duet Asset

Management Ltd., which manages about $200 million of African equities.

“The central bank has chosen currency stability and the price they’re paying

for that is growth. They could hold the line for a lot longer than the markets

expect.”

Africa’s top oil producer introduced curbs on buying foreign-exchange from

late 2014 in a bid to prop up the naira as prices for crude, th
e source of two-

thirds of government revenue and 90 percent of export earnings, plummeted.

These measures have all but fixed the exchange rate at 198-199 per dollar

since March, even as other oil exporters from Russia to Colombia and

Malaysia have let their currencies slide.

Barclays Plc and HSBC Holdings Plc still think the central bank will be forced

to weaken the naira to between 220 and 230 before the end of 2015. The

currency dropped 0.1 percent to 199.05 by 4:25 p.m. in Lagos, the commercial

capital.

‘In Denial’

The International Monetary Fund says the currency measures are detrimental

to Nigeria, where growth slowed to 2.35 percent on an annualized basis in the

second quarter. Former central bank Governor Muhammadu Sanusi II said

last week his successor was“in denial” if he thought he could continue

propping up the naira.

Former general Buhari, who took office as president in May, acted to stabilize

the naira when he ruled Nigeria in the 1980s, and since coming to power this

time around has said a devaluation wouldn’t be “healthy.” The gove
rnment put

out a statement late Thursday reiterating its opposition to debasing the naira.

Emefiele has also warned a devaluation would stoke inflation.

“The central bank governor is doing what he thinks the president wants,”

David McIlroy, chief investment officer at Alquity Investment Management

Ltd., which oversees $100 million of frontier market stocks and is put off

buying more Nigerian shares until the currency weakens, said.

Strategists who earlier this year cut their naira forecasts
on expectations

Emefiele would capitulate have pushed them back up. The median year-end

estimate in a Bloomberg survey fell to as low as 230 per dollar in May and has

since been increased to 200.

While companies including Dangote Cement Plc, the country’s largest publicly

traded stock, and Sahara Group, a power plant operator, have complained that

they are struggling to pay for imports, Buhari insists the central bank is

provides “legitimate businesses” all the dollars they need.

The authorities’ position is bolstered by foreign reserves that
equate to almost

six months of imports, double the IMF’s recommendation, and giving

authorities

enough firepower to defend the naira.

The exclusion of the country’s bonds from JPMorgan Chase & Co.’s local-

currency emerging-market indexes last month has also given Emefiele less

incentive to keep portfolio investors on side. They’re already fleeing Nigeria,

with foreign holdings of naira government debt falling to less than 10 percent

of the total from 27 percent in 2013, according to Standard
Chartered. The

London-based earns most of its income from emerging markets.

“There’s enough room to maintain the current regime for now,” said Samir

Gadio, head of African strategy at Standard Chartered in London, which in

September changed its end-of-year forecast for the naira to 200 from 222. He

now predicts a devaluation by the end of March. “Eventually an adjustment

will take place if oil prices remain at these levels. It’s unlikely to be imminent.”