Safaricom is set to buy M-Pesa Holding Company Limited — the firm that holds hundreds of billions of shillings powering its mobile money service — from London-based Vodafone Group Plc.
The Nairobi Securities Exchange-listed company will pay the British multinational –which was previously its top shareholder— a token amount of $1 in the deal to receive regulatory approvals in the next few weeks.
The transaction, disclosed by Vodafone, has the potential to boost Safaricom’s cash flows besides earning the company interest income through investment of part of the M-Pesa war chest in short-term securities.
“On 17 April 2023, the group entered into an agreement to sell M-Pesa Holding Company Limited (MPHCL) to Safaricom Plc, an associate entity of the group, for $1 (Ksh137 at current exchange rates),” Vodafone said on Tuesday when announcing its results for the year ended March.
“No material gains or loss is expected to arise on disposal. Completion of this transaction is subject to various approvals which are expected to be obtained before or during July 2023,” Vodafone added.
M-Pesa Holding keeps customer funds in trust for the benefit of M-Pesa customers in Kenya.
It acts as the independent trustee for M-Pesa customers, independently administering the trust and holding all funds in the mobile money service.
A cash cow
M-Pesa Holding is also a cash cow on its own, holding and investing hundreds of billions of shillings on a short-term basis amid rapid growth in customer deposits as well as transaction volumes and values.
Vodafone says M-Pesa Holding had short-term investments of €1.247 billion (Ksh185.3 billion) as of March 31, 2023.
It also held M-Pesa customer funds amounting to €1.226 billion (Ksh182.18 billion) on the same date.
“Balances included in the group’s consolidated financial statements for M-Pesa Holding on 31 March 2023 include short-term investments of $1.35 million and $1.33 million due to M-Pesa customers, recorded within Other investments and Other creditors, respectively,” Vodafone said.
The multinational added that any profit generated by M-Pesa Holding is currently donated for use for public charitable purposes only after defraying direct costs.
It remains to be seen whether the same policy on the use of profits will be retained under Safaricom’s control.
The Kenyan telco has been doing a lot of business with M-Pesa Holding as part of its mobile money service which has evolved from a person-to-person cash transfer platform to offer payments and credit among others.
The company sold services worth Ksh96.8 billion ($705.28 million) to M-Pesa Holding in the year ended March 2022, according to its latest available annual report. This was an increase from Ksh73.3 billion ($534.06 million) the year before.
M-Pesa Holding owed Safaricom Ksh1.16 billion ($8.45 million) in the review period, down from receivables worth Ksh2.29 billion at the close of the prior year.
The transfer of M-Pesa Holding to Safaricom marks the telco’s increased control of the major aspects of the mobile money service which was pioneered in Kenya but whose intellectual property was previously held by Vodafone.
Safaricom and South Africa’s Vodacom Group Limited in March 2020 teamed up to acquire the M-Pesa brand from Vodafone at a cost of Ksh2.1 billion ($15.3 million).
A 50/50 basis
The companies now hold the mobile money brand in their joint venture firm M-Pesa Africa which is registered in Kenya and which they own on a 50/50 basis.
The move saved Safaricom significant licence fees it was paying to the UK firm to use the brand.
Vodafone is the majority shareholder of Vodacom with a 65.1 percent stake and also holds a five percent indirect equity in Safaricom.
The transfer of M-Pesa Holding to Safaricom comes as Vodafone’s new chief executive Margherita Della Valle swore to simplify the business and improve its performance.
“Today I am announcing my plans for Vodafone. Our performance has not been good enough. To consistently deliver, Vodafone must change. My priorities are customers, simplicity and growth,” she said.
“We will simplify our organisation, cutting out complexity to regain our competitiveness. We will reallocate resources to deliver the quality service our customers expect and drive further growth from the unique position of Vodafone Business.”