Ethopia: IFC buys Sh19.2bn stake in Safaricom Ethiopia

Safaricom and its partners in the Ethiopian venture will see their combined stake drop by up to 15.5 percent after the International Finance Corporation (IFC) announced a plan to purchase Sh19.2 billion ($160 million) worth of shares in the subsidiary.

Kenya’s biggest telco is the major shareholder in the Ethiopia venture with a stake of 55.7 percent and the entry of IFC as a shareholder could see its ownership drop to below the 50 percent mark, reducing its exposure in the populous nation.

Vodacom Group holds a 6.19 percent share of the business. Sumitomo Corporation and British International Investment (formerly CDC Group) control stakes of 27.2 percent and 10.9 percent respectively in Safaricom Telecommunication Ethiopia Plc (STE)—which is the operating arm of the venture.

The partners together paid $850 million (Sh102.2 billion) towards the licence fee.

Safaricom indicated in books for the year ending March 2022 that the equity contribution by joint venture partners in the business totalled Sh105.2 billion, meaning that the injection of IFC’s Sh19 billion would leave them with a combined stake of 84.5 percent.

Safaricom’s stake is set to drop to about 47.1 percent, while those of Vodacom, Sumitomo and BII would decline to 5.23 percent, 22.99 percent and 9.21 percent respectively.

IFC’s new shareholding is expected at 15.46 percent, which would make the financier the third largest owner in STE behind Sumitomo.

IFC is also expected to provide debt financing to the venture at a later date but did not specify the amount saying the package is still under discussion.

“IFC’s investment will support STE’s countrywide mobile network roll-out and help position the company to comply with the terms of its license, which outlines the requirement for a specified population and geographic coverage targets and reasonable tariffs, universal accessibility and tele density target, amongst others,” said the IFC in its disclosures.

This is not the first IFC involvement in the venture with the institution having been paid a fee of $4 million (Sh481 million) for services rendered with the entry into the new market.

Safaricom did not disclose the services received from IFC, but they could be mobilisation of loans or advisory on bidding for the licence, which was issued last year.

The new capital injection has come at a time when STE has started rolling out a large-scale customer pilot of its network in three regions of Ethiopia as it builds up to a national launch next month.

STE expects to switch on its network in 25 cities in Ethiopia by April next year, the company said in a statement.

On August 29, the firm carried out the first network pilot in Dire Dawa City and followed up with the second test in Harari Region in eastern Ethiopia from September 1. The company added that the third pilot began on September 7 in Oromia Region, starting in Haramaya City.

Expansion into Ethiopia’s telecommunications market is capital intensive, where the financial investment is expected to top the $1 billion (Sh120 billion) mark.

These funds are set to be raised mainly through debt. Safaricom had earlier said it was ready to take more debt in its role as the majority shareholder of the consortium.

The telco sees Ethiopia, a market with more than 100 million people and a relatively lower uptake of mobile and broadband services, as presenting significant growth opportunities.

The new operation has ambitions of achieving gross margins of 40 percent in 10 years. The target is backed by heavy investments that the subsidiary will make in hiring staff and building infrastructure to acquire customers in Ethiopia.

Other funding may yet come from American sovereign wealth fund US International Development Finance Corporation, which in late 2020 signed an agreement to lend up to $500 million (Sh60 billion) to the consortium towards the Ethiopia business.

The DFC loan would offer long-term financing on relatively favourable terms, given that its loans typically mature between five and 25 years, with repayment schedules set on a quarterly or semi-annual basis.

DFC, however, levies a series of special fees on its credit facilities, including upfront retainer (to cover due diligence), origination (payable once on the first disbursement), commitment (an annual percentage on undisbursed amount) and maintenance (an annual charge to cover the cost of monitoring the loan).

The consortium is yet to disclose whether it has drawn down any funds from DFC.