MTN and IHS Towers have been long-time partners for over 11 years, especially in Nigeria where the bulk of IHS’s sites are located. In a surprising move, MTN Nigeria has declined to renew one of their leases with IHS Towers for 2,500 towers and from 2025 will instead be switching equipment onto existing and new towers of competitor towerco American Tower.
MTN has selected competitor towerco American Tower to sign a new tenancy contract with that will include removing all equipment and power infrastructure from IHS Towers sites and relocate to American Tower sites. It is understood that most of these sites will need to be newly built.
American Tower has commented that they “have a strong partnership with MTN in Nigeria and Africa more broadly and looks forward to continuing to support MTN’s infrastructure and network expansion needs through AMT’s existing asset base, BTS capabilities and power as a service program”.
MTN commented that American Tower was “selected as the preferred tower company for those sites based on its superior bid submission” after a review of the bids received for the tower contract.
This article takes a dive into the relationship between towerco and operator, and how shareholder disputes and board-level rows have led to a declining relationship between IHS and their customer and shareholder MTN, as well as what the future holds for this pivotal relationship.
The build up to implosion
IHS Towers is now the 10th largest towerco in the world, but it began its life in 2001 as a small Nigerian engineering firm initially building and then maintaining towers for MNOs, expanding to providing maintenance and eventually offering co-location services in 2009.
MTN has been a core part of IHS’s journey, having acquired MTN portfolios in Cameroon and the Ivory Coast in 2012, Zambia and Rwanda in 2014, further MTN sites in Nigeria in 2015, and most recently MTN sites in South Africa in 2022.
IHS Towers had been engaging with MTN for over a year to renew the lease and had reached what appears to be a satisfactory compromise, with the indication that MTN were ready to accept the terms. However, after a few months of delayed final authorisation it was to extreme surprise that IHS Towers received an indication that MTN would not renew their contract.
MTN’s decision to go through the arduous task of relocating equipment to new sites is largely unheard of in the industry, requiring the construction of many new sites in a market where greenfield tower deployment is a complex and challenging process. Sources within the industry with knowledge of the prior negotiations were surprised by the announcement.
The decision has also been self-destructive for MTN who, as IHS Towers’ largest shareholder, have lost close to US$200 million in market cap as the decision was greeted by a sharp downtick in IHS Towers’ share price.
What is most surprising is that, as sources suggest, IHS Tower has not failed to deliver on its operational performance targets in Nigeria. Site uptime has been good, and the quality of sites have been maintained while investments continue to be made in improving and enhancing the network. As far as TowerXchange is aware, IHS Towers have delivered on their service level agreements.
Shareholder dissatisfaction continues to plague IHS management
MTN publicly states that the decision was based off American Towers “superior bidding submission” as well as to “further diversity [MTN’s] site portfolio”, but the likely diving factor for this decision has been ongoing disputes and dissatisfaction from MTN as well as other investors towards IHS Towers’ management board.
Back in June this year during the company’s annual general meeting, IHS Towers refused to give MTN Group and Wendel SE, the largest shareholders of the company, greater representation on the board after both investors submitted a proposal to increase their representation. The proposal sought to allow shareholders with up to 10% per cent stakes to nominate board members, but IHS Towers argued that this was not in the best interests of the company.
MTN Group owns a 26% stake in IHS Towers while Wendel SE holds 19%, a total of 45%. Other shareholders of IHS include Emerging Capital Partners (11.9%), the GIC (5.4%), Goldman Sachs (2%) and Capital Research & Management (1.5%), who so far have remained on the sidelines of this latest row.
In response, investors raised concerns over IHS’s ‘concerning’ corporate governance practices and experts stated that there could be significant implications for the company’s governance structure and set wrong precedence for the market. However, it is important to note that towerco operational independence is essential to the business model, as argued at length in the pages of the TowerXchange journal.
MTN’s demand for greater board control may mean IHS Towers risk being viewed less as an independent towerco and more as an infrastructure branch of their largest shareholder. Towercos who have MNO shareholders can face challenges when trying to increase co-locations from competitor MNOs, who can at times feel reluctant to fully trust a partner whose board consists of competitor representatives.
Between them MTN, Wendel and Blackwells currently have 45% voting rights, which means the additional 6% would push them into majority shareholder voting control. IHS Towers argue that MTN putting a representative on the board would make it very challenging for the towerco to maintain their position as a neutral independent towerco and risk raising suspicions from other operators about information MTN might become privy to.
As an activist investor, Blackwells has been putting pressure for some time on IHS Towers and has made moves recently to attempt to drive a change in management. A letter from Blackwells Capital submitted also in June accused the towerco of having “no serious focused on enhancing value for the company’s shareholders” and argued the investing activates of the US$1.5 billion spent last year “are not explained in any meaningful way to permit shareholders to understand these cash users”, according to Chief Investment Officer Jason Aintabi.
Questions around IHS Towers’ spending habits, borrowing capital at high-interest rates and “hiding” behind the Cayman Island’s finance and disclosure laws where the company is incorporated, according to Blackwells.
The Cayman Islands has been repeatedly criticised for its minimal disclosure rules that allow companies to share limited information with shareholders. Blackwells has called for the towerco to relocate to the US to benefit from increased transparency.
This is not the first time IHS Towers has seen shareholder disputes, with previous clashes between IHS management and Wendel over voting rights occurring before the company’s IPO.
We can fairly assume that the decision by MTN to relocate their active equipment from IHS Towers to American Towers is likely a result of the ongoing dispute by MTN to increase their voting rights and representation, rather than because of underperformance on behalf of IHS Towers.
This puts the company in a very challenging position where MTNs relationship is dependent on how IHS addresses their shareholder power, rather than service performance or operational excellence.
MTN Nigeria is a critical relationship to the success of IHS Towers
This restlessness from IHS investors is underpinned by the long-term performance of the company, with a share price that has lost 54.5% of its value since its IPO before this latest news which sent share prices tanking to just US$4.62 per share, a 72.3% reduction over the past 5 years.
The share price decline is not a disease of IHS Towers, share prices have declined at Africa’s two other major towercos too. IHS Towers went public a few months before global interest rates began spiking across the world.
Higher interest rates have depressed towerco valuations across the board with both American Tower and Helios Towers seeing significant reductions in value over the same period. IHS Towers’ IPO raised the firm a lot of money, but also priced its shares at the top of the cycle.
MTN Nigeria declining to renew their lease on 2,500 sites now puts IHS Towers’ most important relationship at risk. MTN accounted for 48% of total IHS revenues in 2023 with these sites under contract alone generating US$45 million in Q2 2023: 12% of IHS Nigeria’s revenue and 8% of total revenue.
On the current situation, Blackwells has called for the resignation of CEO Sam Darwish, interviewed here this summer, describing his board as “inept” and “kowtowing to his whims”, with Jason Aintabi stating since IHS Towers went public in October 2021 there had been “large-scale governance, operational and strategic failings which continue to impact the value of our investment.”
Blackwells is now in the process of appointing a new CEO and has threatened that should IHS Towers’ Directors entrench themselves they will be taking legal action.
What’s next for the IHS-MTN relationship?
The remaining US$216 million in aggregate revenue from MTN contracts in Nigeria are approaching their expiry dates, between 2029 to 2035. IHS Towers has 4 contracts with MTN Nigeria which fall under the umbrella of a total of 16,398 sites under ownership globally.
MTNs decision to go through the time, resources and cost of reconfiguring its network to avoid working with IHS Towers suggests it may be in a position to follow suit for the remaining renewals to put further pressure on the company’s governance matters.
While Nigeria forms the bulk of towers where MTN has tenancy with IHS, the two also have contracts in other countries across the continent as well. IHS Towers has recently renewed their contract with MTN in Cameroon and are currently in the process of finalising renewing the contract in the Ivory Coast. Leases in Rwanda and Zambia with MTN are also coming up for renewal next year. IHS Towers is not aware of any other contracts MTN doesn’t plan to renew.
IHS Towers is the only towerco active in the Ivory Coast which means even if MTN were to decide not to renew there is no easy competitor to switch to and has no major competitors in Rwanda outside small local towerco TRES. In Zambia, Infratel is the only other active towerco in the market but is government owned.
Finally, this leaves IHS Towers’ relationship with MTN in South Africa, which has been shaken up due to the collapse of the country’s energy grid. Last year IHS Towers announced the acquisition of MTN’s 5,800 tower portfolio in South Africa, as well as an additional ESCO-style contract to deliver power-as-a-service to all 13,000 sites MTN is a tenant on.
With state energy-grid provider ESKOM’s decline in power provision, load shedding increased from 6 hours a day to 10-12 hours, and all tower operators in the market had to scramble to plug the gap in increased on-site power generation.
MTN has been forced to circumvent IHS Towers and go to energy service and equipment providers directly, scaling back investments in 5G rollout to prioritise on-site power and keeping the network live. Of course, while MTN’s South Africa agreement won't be up for renewal for another 9 years, it has undoubtedly added another dent in the relationship between the two.
It is not clear exactly what the outcome of this tumultuous relationship between IHS Towers and its investors will be, but IHS are in the process of engaging both MTN and Wendel to reach a resolution. However, the further drop in IHS share price, as well as unhappy investors, puts further pressure on the company’s ability to raise capital which is the lifeblood of any towerco.
Africa still has a massive infrastructure gap to plug, and many tower networks, especially those recently acquired in South Africa, require significant amounts of capex commitments in site upgrades. IHS Towers also has ambitious carbon emission reduction targets and has already funnelled US$100 million into greening their energy network, although far more will likely be required to reduce scope 1 and 2 KW-hour emissions by 50% by 2023 as set out in their Carbon Reduction Roadmap last year.
