IHS Towers, Africa’s largest telecom tower company, has successfully secured a $439 million loan to refinance its existing debt. This new financing will help the company manage currency risks in its major markets and support its operations across various regions. The loan is divided between USD ($255 million) and South African Rand, enabling IHS Towers to shift more of its debt into local currencies.
The funds will be used to refinance a $430 million debt from October 2022, originally set to mature in 2025. By refinancing early, IHS Towers aims to secure better terms, such as lower interest rates and increased repayment flexibility. The company describes the transaction as “leverage neutral,” indicating that it will not significantly alter its overall debt-to-equity ratio.
Both components of the loan carry a 4.50% interest rate. The USD portion is linked to the three-month Secured Overnight Financing Rate (SOFR), while the South African Rand portion is tied to the three-month Johannesburg Interbank Average Rate (JIBAR). As these rates fluctuate with the market, they may affect IHS Towers’ borrowing costs over time.
Structured as a bullet-term loan, IHS will repay the entire amount in one lump sum after five years, allowing immediate access to the funds but necessitating a substantial repayment at the end of the term.
In Q2 2023, IHS reported a significant loss of $1.25 billion, primarily due to foreign currency losses in Nigeria. In response to these instabilities, the company has been actively working to reduce its exposure to the US dollar. This includes renegotiating tower contracts with major clients, such as MTN Nigeria, to allow for fee collection in both USD and local currency, as well as incorporating a component to cover rising diesel costs.
In its Q2 2024 earnings call, IHS revealed mixed financial results. Revenue increased by 4% compared to Q1 2024, but year-over-year revenue declined by 20%, largely due to Naira devaluation. Adjusted EBITDA, however, rose by 35% from the previous quarter, although it still showed an 11.9% decrease year-over-year. The adjusted EBITDA margin improved to 57.6%, while capital expenditures (CapEx) decreased by 73% year-over-year.
Operationally, IHS added a net of 385 tenants and completed 1,566 lease amendments, along with constructing 207 new towers, including 136 in Brazil. The average exchange rate during Q2 2024 was NGN 1,392 to the dollar, contributing to the reported challenges. Despite these hurdles, IHS has approximately $12.3 billion in contracted revenues, with an average remaining tenant term of over eight years, bolstering its financial stability.
While the results indicate strong operational performance, IHS faces ongoing challenges. The Naira devaluation has significantly impacted reported revenue and adjusted EBITDA, leading to the aforementioned 20% year-over-year revenue decline. Additionally, the company anticipates a negative impact of $30 million to $35 million on its fiscal year 2024 results due to new contract terms with MTN Nigeria. The ability to access US dollars from Nigeria remains uncertain, posing further risks.
In a recent Q&A session, IHS Chief Financial Officer Steve Howden highlighted ongoing growth in lease activity across Nigeria and other African markets. He noted the successful construction of 207 new sites, significant developments in Latin America, and robust colocation and lease amendment activity driven by the African portfolio.
