Kenya’s largest telco Safaricom is seeking to raise up to $2 billion from local banks and development finance institutions (DFI) in five years to fund its Ethiopian subsidiary, which is set to start commercial operations within the next seven months.
So far, the telco, which is listed on the Nairobi Securities Exchange, has invested $540 million in Ethiopia including a licensing payment of $470 million.
Part of the proposed funding will also be raised internally and through rental financing from equipment vendors.
“We have managed to secure short term facility. We are also in discussions with local banks for a medium-term to long-term facility, which we are in very advanced stages of negotiations,” the telco’s chief finance officer Dilip Pal told reporters in Nairobi last week.
“You will also recall that when the Tigray crisis broke out in Ethiopia our discussion with the International Finance Corporation also stalled but these discussions have now resumed and we are progressing very well.”
Safaricom, through a consortium— Global Partnership for Ethiopia (GPE) — was awarded a licence by the Ethiopian government on July 6, 2021, to provide telecom services in the country.
Later GPE incorporated a fully owned subsidiary in Ethiopia — Safaricom Telecommunication Ethiopia Plc (STE).
The indirect shareholding of Safaricom Plc in STE is 55.71 percent, Vodacom Group Ltd (6.19 percent), Sumitomo Corporation (27.2 percent), CDC Group Plc (10.9 percent).
During the period under review, the STE’s total financing cost stood at Ksh4.65 billion ($40.08 million) comprising financing costs ($6.12 million), Interest costs ($11.98 million), forex and hedge costs ($20.94 million) and fair value financial guarantees ($1.04 million).
In the current financial year (2022-2023) Safaricom expects to incur between Ksh60 billion ($517.24 million) to Ksh65 billion ($560.34 million) on capital expenditure in Ethiopia.
“We have attractive rental financing from our vendors. So we will continue to have rental financing, local short-term borrowing, and continue to finalise local medium to long-term borrowing and as I said the DFI funding is under consideration,” said Mr Pal.
“Overall, the entity is well funded and the consortium is committed to ensuring there is enough resources to carry out the activities they have planned for.”
Last year, the telco undertook a one-year bridging facility of $400 million to support the payment of license fees for the telecom licence.
The bridging facility was later converted into a five-year long-term facility of $120 million, and $280 million seven-year facility with a two-year moratorium on principal repayment.
The new facility was completed through a syndication process where both local and international banks participated in.
New growth areas
“Our focus in FY23 is to accelerate new growth areas by developing scalable businesses in these areas. Safaricom Ethiopia is preparing to launch operations. In line with our expectations, the OpCo (Ethiopian subsidiary) requires significant investment in the first years of operations before turning profitable,” said Peter Ndegwa, Safaricom CEO.
Safaricom’s net profit for the year ended March 31 dipped by 1.71 percent to Ksh67.49 billion ($581.81 million). This was largely from a surge in operating expenses and finance costs for loans secured to finance capital expenditure of Ksh10.5 billion ($90.51 million) in Ethiopia, Africa’s second most populous and fast growing nation.
Profit after tax fell to Ksh67.49 billion ($581.81 million) from Ksh68.67 billion ($591.98 million) last year (2021) as operating expenses jumped 19.9 percent to Ksh55.18 billion ($475.68 million) from Ksh46.03 billion ($396.81 million) in the same period.
According to the group’s audited financial statements short term borrowings increased by 38.1 percent to Ksh20.4 billion ($175.86 million) from Ksh14.77 billion ($127.32 million) while long term borrowings stood at Ksh44.91 billion ($387.15 million).
Finance costs more than tripled to Ksh6.43 billion ($55.43 million) from Ksh2.02 billion ($17.41 million).
As at March 31 2022, the telco’s total borrowings stood at Ksh65.31 billion ($563.01 million) while cash and cash equivalents stood at Ksh30.78 billion ($265.34 million) leaving a net debt position of Ksh34.53 billion ($297.67 million)
Safaricom, which has more than 42 million customers in Kenya however recovered from the effects of Covid-19 with its key revenue streams depicting positive trajectory.
Total revenues grew by 12.9 percent to Ksh298.07 billion ($2.56 billion) from Ksh264.02 billion ($2.27 billion) buoyed by strong growth in M-Pesa, mobile data and fixed data revenues.
The telco’s board has recommended a final dividend payment of Ksh0.75($0.006) per ordinary share amounting to a total of Ksh30.04 billion ($258.96 million).
This brings the total dividend for the year to Ksh55.69 billion ($480.08 million) translating Ksh1.39 ($0.01) per share in respect of the year ended March 31, 2022, after an interim dividend of Ksh0.64 ($0.005) per ordinary share amounting to Ksh25.64 billion ($221.03 million) was declared during the period under review.