Too big to fail is the way to go

Etisalat Nigeria has 23 million subscribers. Etisalat Nigeria is the 4th largest telecoms company in Nigeria. Etisalat Nigeria has roughly a 15% market share. According to many newspaper reports Etisala Nigeria is highly indebted to the banks and is unable to service its debts. In most other countries we’d be taking a minor player like Etisalat Nigeria behind the woodshed. However this is Nigeria. In Nigeria Etisalat is too big to fail.

According to the headline of this newspaper report Etisalat’s parent has agreed to inject funds to take care of the debt. The article does not make such bold claims. However what is indeed clear from the article is that the debt situation has led to high powered interventions from both the NCC and the CBN. If I were a betting man, my money would be on the eventual intervention of the Etisalat Group.

The saving of Etisalat Nigeria means that the banks are fine. None of those banks in the lending consortium could have shrugged off that loss. Since GT Bank and some of the others in the consortium are also too big to fail, the Etisalat Group intervention has the advantage of saving many too big to fail companies at the same time.

The moral hazard is obvious. How can you stop risky behaviour by the big corporations if the government will have no choice but to bail them out? Some day we will have to let a big company go down to send a message — but clearly today is not that day.

The other obvious thing is that the goal of every Nigerian business is to become strategically important and too big to fail and then you can pretty much place your risk on on the government and on the tax payers.

Hey who doesn’t like a one way bet?


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