IHS Nigeria has announced the signing of an agreement with Airtel Nigeria to take on 3,500 new tenancies over the next 5 years, with a majority of these expected to be delivered in 2024 and 2025. The deal also includes the extension of its existing 6,000 tenancy contract until December 2031. The agreement will bring Airtel Nigeria onto 2,500 existing sites as an additional tenant, a well as 5G amendments and a build-to-suit commitment.
IHS Towers Group CEO Sam Darwish commented "The expansion and renewal of our relationship with Airtel Nigeria is a testament to our continued commitment to serving our customers and the connectivity demands of Africa. Airtel Nigeria, as well as Airtel Africa who we serve in other markets in Africa, has been a long-term partner of IHS, and I am delighted that we continue to strengthen our collaboration to help facilitate mobile connectivity in our largest market, supporting our customers in rolling out new sites throughout Nigeria.”
It’s been a tough year for IHS Nigeria
IHS Towers has faced battle after battle in their largest market, their woes beginning when the towercos largest customer and shareholder MTN Group announced it would not renew one of their leases for 2,500 sites, opting instead to partner with competitor towerco American Tower. The news sent shockwaves through IHS Towers’ share price and came as a huge surprise given the damage MTN dealt to its own stock in IHS Towers as well as the expected cost of relocating and even building new sites to replace this network.
This decision was partly prompted by ongoing shareholder disputes between IHS Towers’ leadership team and MTN Group and Wendel, who wanted to see greater representation on the board. Activist investor Blackwells had also been openly critical of the leadership team, with the towerco facing disgruntlement from across the board.
This has also coincided with a rocky macroeconomic environment in Nigeria, which saw sequential declines in the value of the Niara down to a record low earlier this month. In June 2023 Nigeria’s Central Bank unified Nigeria’s foreign exchange market by replacing old exchange rate segments into a single window call NAFEM in October 2023. The result was a 59.4% drop in the Niara, which has continued to show volatility since.
Diesel prices have also skyrocketed, as has the cost of goods and services generally within the country, adding a huge burden to energy OPEX for all towercos. IHS Nigeria saw an increase to US$38mn in diesel costs alone, as well as an increase in security spending to US$2.6mn to manage the increase in theft and vandalism of equipment on sites.
This impact was evident in IHS Towers’ Q3 2023 financial results, which saw a 10.4% decrease in revenue because of a 78.2% Niara devaluation FX headwind. Overall, the towerco saw total losses of US$265.4mn over the course of 2023 due to losses from Nigerian operations.
Outside Nigeria, IHS Towers had fared much better, seeing 4.4.% EBITDA growth for their Sub-Saharan African markets outside Nigeria. But Nigeria alone makes up nearly 60% of the group's total revenues, leaving IHS extremely exposed to market conditions despite efforts to diversify their holdings through acquisitions in Latin America and MENA.
With the dust settled, IHS Towers’ share price sits at a record low US$2.80, 83.2% down from its original listed stock price of US$16.69.
A sign of good things to come?
Despite these challenges, there have been some positive gains made by the towerco. In January, IHS Towers took steps to resolve its disputes with Wendel by signing up to changes to its corporate governance structure and winning the backing of one of their major shareholders, assisting IHS in retaining independent control of the towerco.
The deal included declassifying the board over the next two years and allowing all directors to be elected annually, lowering the ownership threshold to nominate directors from 30% to 10%, introducing a new right for shareholders owing 25% to requisition a general meeting, and lowering the threshold for removing a director from a 2/3 to 50% majority.
While IHS Towers maintains its view that it doesn't expect to lose the entirety of its 2,500-tower contract with MTN (despite MTN statements that it’s 2,500 tower deal with ATC Nigeria is conclusive), the towerco is expanding its relationship with Airtel on top of seeing through a more normal flow of contract renewals.
The deal will also help hedge against the lost MTN revenues as well as fuel prices and inflation. The financials of the contract aren’t disclosed, and it’s expected that IHS will generate additional returns and upside over the contract period.
IHS Towers is also positive of the long-term outlook for their Nigeria arm. As of Q3 2023, around 60% of Nigeria’s revenue is US$-linked, of which over 95% of their US$ contract revenues resets quarterly or sooner. The remaining 40% is Niara-linked and has annual local CPI escalators. According to IHS Towers, it usually has one quarter leg until the FX resets kick in, so they expect to see a bigger hit to revenue and EBITDA in the quarter immediately following with expectations of a rebound in subsequent quarters.
Beyond this, there isn’t much towercos can do to mitigate major external factors. But what IHS Towers can, and is, doing is control their operator tower portfolio to maximize value, such as expanding their relationship with Airtel Africa.
Expanding on ESG commitments
Included in the announcement was a reaffirmed commitment by IHS Towers to pursue its Carbon Reduction Roadmap aimed at reducing IHS Towers’ intensity metric by 50% by 2030, aligning this with Airtel Africa’s own sustainability strategy to hybridise power on collective sites.
In October 2021, Airtel Africa published their sustainability strategy, with identified high-priority areas including ethical business practices, digital inclusion, health and safety standards, supply chain oversight and climate change. Commitments to enhancing network quality, coverage and resiliency by 2030, as well as removing lead-acid batteries from all sites by 2040, expand recycling and waste management initiatives, and achieving net-zero emissions ahead of a 2050 deadline.
IHS Tower released their carbon reduction roadmap in late 2022, which included a US$214mn investment until 2024 under Project Green, reducing scope 1 and 2 emission by 50% by 2030 as well as deliver free cash flow savings of US$77mn by 2025. IHS Towers have invested heavily in both building an in-house Power-as-a-Service model as well as partnering with local and international energy-as-a-service companies (ESCOs).
