IFC injects Sh36bn in Safaricom Ethiopia
International Finance Corporation (IFC) has announced a $257.4 million (Sh35.88 billion) debt and equity injection in Safaricom Ethiopia to support building communications network.
IFC on Friday made the disclosure, stating that $157.4 million (Sh21.9 billion) has been injected as an equity investment while the remaining $100 million (Sh13.9 billion) is a loan.
“Through this investment, we hope to help the company create a competitive market for mobile connectivity, reflecting our strategy to increase competition in the digital sector globally and reduce costs for consumers,” said Mohamed Gouled, IFC vice-president of industries.
The completion of the deal comes about nine months after the World Bank arm announced plans to purchase a stake in Safaricom Ethiopia.
The size of the stake IFC will be allocated for the equity investment was not immediately clear. IFC said in a statement it was going to hold a “minority position” in Safaricom Ethiopia.
Kenya-based Safaricom, which currently owns a controlling stake (55.7 percent) had said in May that the IFC stake would be below 10 percent.
South Africa’s Vodacom Group holds 6.19 percent in Safaricom Ethiopia, while Japanese Sumitomo Corporation and British International Investment (formerly CDC Group) control 27.2 percent and 10.9 percent, respectively.
Safaricom has said the investments will support the ongoing construction and infrastructure to ensure affordable internet, mobile connectivity, and technology access for people and businesses as it moves to scale its reach in the country.
Miga guarantees
Multilateral Investment Guarantee Agency (Miga), another arm of the World Bank, will provide 10-year guarantees of $1 billion (Sh139.4 billion) to cover the equity investments of Safaricom Ethiopia’s shareholders.
‘With this guarantee, Miga hopes to stimulate more foreign direct investment in other sectors of the Ethiopian economy,” said Hiroshi Matano, executive vice-president at Miga.
A portion of the Miga guarantees, $76 million (Sh10.59 billion), will come from its guarantee facility as a first loss layer.
“The equity investment by IFC and the 10-year guarantees of $1 billion by MIGA is a show of confidence in Ethiopia as a viable growth market as well as in our business,’’ said Safaricom chief executive Peter Ndegwa.
Safaricom and its partners paid $850 million (Sh118.49 billion) as telecommunications licence fees and started commercial operations in Ethiopia last year in October.
The telco was also at some point talking to the American sovereign wealth fund, US International Development Finance Corporation (DFC), for up to $500 million (Sh69 billion) loan towards the Ethiopia business.
The discussion with DFC was, however, stopped when IFC came through with the deal.
Safaricom plans capital expenditure of between Sh40 billion and Sh45 billion on the Ethiopian unit in the current financial year. This compares with Sh55.6 billion spent in the financial year ended March 2023.
The telco was on May 11 granted a licence for mobile money in Ethiopia after paying $150 million (Sh20.9 billion) as investment fees.
Mobile money in Ethiopia would further lift the profile of M-Pesa, which has been raising its stake in Safaricom’s revenue mix since its launch in 2007.
Safaricom is battling with State-owned mobile operator, Ethio Telecom, which has enjoyed monopoly for decades. In May 2022, it launched its mobile phone-based financial service, Telebirr.
Safaricom Ethiopia had, between October last year and the end of March, added about three million customers, built a distributor network of over 114 outlets and covered 22 regions using about 1,300 network sites.
The Ethiopia unit generated $131 million in revenue, but the operating costs came in at $143 million, leading to a loss after tax of $87 million.
The shareholders have so far pumped $1.24 billion (Sh172.86 billion) into the Ethiopia unit, with Safaricom putting in $690 million (Sh96.2 billion). The estimated five-year capital investment is up to $2 billion (Sh279 billion).
Safaricom’s net profit for the year ended March 2023 dropped by 22.2 percent to Sh52.48 billion from Sh67.49 billion posted in the previous year, majorly on increased operating expenses in Ethiopia.
The profit fall was for the third straight year from the peak of Sh73.66 billion in the year ended March 2020 and became the lowest for the telco since 2017 when net earnings wereSh48.44 billion.
$1 = Ksh139.40
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