Houston-based energy company Enron, once deemed too big to fail, claimed revenues of nearly $111 billion in 2000 and was bankrupt by Dec. 2, 2001.
One person who famously predicted Enron’s failure was James Chanos, a New York City-based short seller whose business model of intensive research into stocks makes his investments function more like those of a whistle-blower than most typical investments, according to TheTradeFeed blog.
This led to Chanos being described as “the catastrophe capitalist” by NewYorkMagazine.
Enron has become the butt of investors’ jokes, but if you owned any part of Enron — many of its 30,000 or so employees had most or all of their retirement savings in Enron’s stock — it was’t funny.
Now Chanos has a new target — sub-Saharan Africa — and he thinks MTN is in a lot of trouble, Fortune reported.
Chanos runs the hedge fund Kynikos Associates and spoke Wednesday at the annual Sohn Investment Conference—an event where prominent hedge fund managers make presentations about their best investment ideas.
MTN gets a majority of its business in Africa, and its profit margins are larger than its competitors, but its revenues and margins are falling, Chanos said. He’s betting against the company, Fortune reported.
As MTN profits fall, Chanos said that will erase a significant part of the company’s earnings, which aren’t as solid as they seem. The company’s cash has been rising much slower than its earnings recently, suggesting the company is having a harder time collecting on what it is owed.
If that’s not bad enough, 60 percent of the MTN’s profits come from Nigeria and South Africa, the rest comes from Uganda, Sudan, Syria, and Iran—not stable markets, he said. “It’s a telecom stock that Wall Street thinks will resume growth,” Chanos said. He disagrees.
Here are some things about MTN that Chanos may not have mentioned.
MTN Ghana now holds more than 50 percent market share in Ghana due to massive investment, introduction of new services and network expansion, GhanaBusinessNews reported May 4.
This prompted MoneyWeb to speculate about a possible stock exchange listing in Ghana and in Nigeria, where MTN Nigeria is set to roll out its fourth generation long term evolution (4GLTE) broadband services by July 2016 in selected cities.
MTN Nigeria paid $238 million US to acquire Visafone’s assets, including its frequency and 2.1 million customers in order to improve the quality of MTN’s broadband services for its subscribers. The main reason was to get access to the frequency which would allow it roll out LTE, according to LeadershipNG.
Nigerian media are complaining that the government is dragging out resolution of the contested $3.9 billion fine the government imposed in October on MTN for missing a deadline to disconnect unregistered SIM cards.
MTN offered in March to pay the Nigerian government $1.5 billion and dropped a lawsuit against the Nigerian regulator in favor of an out-of-court settlement, Reuters reported. Since then, silence.
MTN says it is evaluating “opportunities and appropriate mechanisms to ensure broader local ownership, including in key markets such as Nigeria,” Moneyweb reported April 28.
Some people believe a settlement with Nigerian authorities on MTN’s regulatory fine could include a commitment to list its local operations on the Nigerian Stock Exchange.
However, MTN said that “market conditions and the operating environment need to be conducive before any listing is pursued,” Moneyweb reported. MTN has less than a year to resolve its ownership structure in Ghana, where it must have a minimum 35 percent Ghanaian ownership in place by January 2017.
