Dec 4, 2022

Mawazo Writing Africa

Writing about the main

Safaricom seeks $2b to bankroll Ethiopia operations

Kenya’s largest telecoms company Safaricom is aiming to raise up to US$2 billion from local banks and development finance institutions (DFIs) over five years to fund its Ethiopian subsidiary, which is expected to start commercial operations within the next seven months.< /p >

To date, the Nairobi Securities Exchange-listed telecom company has invested US$540 million in Ethiopia, including a US$470 million license payment.

Read:Safaricom signs first infrastructure deal with Ethiopia

Some of the proposed funding will also be raised internally and through rental financing from equipment providers.

“We have managed to secure a short-term facility. We are also in talks with local banks for a medium- to long-term facility that is in very advanced stages of negotiations,” Dilip Pal, the telecom company’s chief finance officer, told reporters in Nairobi last week.

“You will also recall that when the Tigray Crisis erupted in Ethiopia, our talks with the International Finance Corporation also stalled, but these talks have now resumed and we are making very good progress.”

< p>Safaricom, through a consortium – Global Partnership for Ethiopia (GPE) – received a license from the Ethiopian government on July 6, 2021 to provide telecommunications services in the country.

GPE later established a wholly owned subsidiary in Ethiopia – Safaricom Telecommunication Ethiopia Plc (STE).

Safaricom Plc’s indirect stake in STE is 55.71 percent, Vodacom Group Ltd (6.19 p percent), Sumitomo Corporation (27.2 percent), CDC Group Plc (10.9 percent).

During the period, the total funding cost of the STE remained at Ksh4.65 billion ($40.08 million) , consisting of finance costs ($6.12 million), interest costs ($11.98 million), foreign exchange and hedging costs ($20.94 million), and fair value financial guarantees ($1.04 million).

In For For the current fiscal year (2022-2023), Safaricom expects investments in Ethiopia to range from Ksh 60 billion (US$517.24 million) to Ksh 65 billion (US$560.34 million).

“We have attractive rental financing from our providers. So we will continue to have rental financing and local short term lending and continue to do local medium to long term lending and as I said before DFI financing is being considered,” said Mr. Pal.

“Overall, is the company is financially sound and the consortium is committed to ensuring that there are sufficient resources to carry out the planned activities.”

Last year, the telecommunications company committed to a one-year, $400 million bridge facility

The bridge facility was later split into a five-year, $120 million long-term facility and a seven-year, $280 million facility a two-year one-year moratorium on capital repayments.

The new facility was approved by a Syn Indication process completed, in which both local and international banks participated.

New Growth Areas

“Our focus in FY23 is on accelerating new growth areas by developing scalable businesses in these areas . Safaricom Ethiopia is preparing to start operations. In line with our expectations, the OpCo (Ethiopian subsidiary) will require significant investments in the early years of operation before becoming profitable,” said Peter Ndegwa, CEO of Safaricom.

Safaricom’s net income for the year ended March 31st declined 1.71 percent to Ksh 67.49 billion (US$581.81 million). This was largely due to an increase in operating and financing costs for loans secured to fund Ksh10.5 billion (US$90.51 million) in capital spending in Ethiopia, Africa’s second-most populous and fastest-growing nation.

Read:Safaricom Profits Decline Slightly to US$581 Million

Profit after tax fell from Ksh68.67 billion (591.98 million USD) last year (2021) to Ksh 67.49 billion (USD 581.81 million). operating expenses increased 19.9 percent to Ksh 55.18 billion (US$475.68 million) from Ksh 46.03 billion (US$396.81 million) over the same period.

According to According to the group’s audited financial statements, short-term loans increased 38.1 percent to Ksh 20.4 billion (US$175.86 million) from Ksh 14.77 billion (US$127.32 million), while long-term loans increased to 44.91 billion Ksh (US$387.15 million).

Financing costs more than tripled (US$55.43 million) to Ksh6.43 billion from Ksh2.02 billion (US$17.41 million US dollars).

As of March 31, 2022, the telecom company’s total borrowings were Ks h65.31 billion (US$563.01 million), while cash and cash equivalents stood at 30.78 Ksh billion (US$265.34 million) was outstanding, leaving a net debt of Ksh 34.53 billion (US$297.67 million). However, Safaricom, which has more than 42 million customers in Kenya, recovered from the impact of Covid-19, with key revenue streams showing positive development.

Overall revenue increased up 12.9 percent from Ksh264.02 billion to Ksh298.07 billion (US$2.56 billion). ($2.27 billion), driven by strong growth in M-Pesa, mobile data and fixed-line data revenues.

The telecom company’s board of directors approved a final dividend payment of Ksh0.75 ($0.006 ) per common share totaling recommended Ksh30.04 billion (US$258.96 million).

This brings the total dividend for the year to Ksh55.69 billion (US$480.08 million -dollars), which equates to Ksh1.39 (US$0.01) per share with respect to the year ended March 31, 2022, after an interim dividend of Ksh0.64 ($0.005) per common share of Ksh 25.64 billion ($221.03 million) was decided during the period.