Companies

Safaricom gets boost as top firms snub Ethiopia bid

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Safaricom's headquarters in Nairobi. FILE PHOTO | NMG

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Summary

  • The fact that only two bids were made has narrowed the agency’s options and the bidding process could be reopened, especially if the financial offers fall below the government’s targets.
  • While both Safaricom and MTN have substantial financial backing, they have emphasised that they will not overpay for the Ethiopian licences.

Safaricom Plc’s #ticker:SCOM chances of winning one of two Ethiopia telecommunications operating licences got a boost after it emerged as one of only two bidders to participate in the auction that closed on Monday.

The Ethiopian Communications Authority (ECA) announced that it received bids from a consortium comprising the Nairobi Securities Exchange-listed firm and MTN International Mauritius, a subsidiary of South Africa's MTN Group.

Nine other firms that had expressed interest in the auction dropped out at the last stage, with reports indicating that they were spooked by alleged lack of transparency in the process and requirements that winners build their own network infrastructure such as towers.

They also felt that they were not ready to pay the amounts expected by the Ethiopian government, which expects to raise billions of dollars from the sale of the licences in what officials have described as “the deal of the century.”

The firms that dropped out of the race are Etisalat, Axian, Orange, Saudi Telecom Company, Telkom SA, Liquid Telecom, Snail Mobile, Kandu Global Communications and Electromecha International Projects.

ECA said the winners will be selected after technical and financial evaluation is completed.

The fact that only two bids were made has narrowed the agency’s options and the bidding process could be reopened, especially if the financial offers fall below the government’s targets.

The amounts that Safaricom and MTN put in their bids is expected to be disclosed within a month.

Safaricom’s consortium includes its parent companies Vodacom Group, Vodafone Plc, UK sovereign wealth fund CDC Group and Japanese conglomerate Sumitomo Corporation.

“We are submitting a strong tender as the Global Partnership for Ethiopia consortium led by Safaricom,” Shameel Joosub, Vodacom’s chief executive, said on Monday.

“The country’s authorities have also repeatedly committed to create and maintain a level playing field for all, giving us confidence that the next round of regulations will be tackled as soon as possible.”

The consortium, he added, has a unique mix of experience and expertise to help in the transformation of Ethiopia into a modern digital economy.

Safaricom, Vodafone and Vodacom are telecoms operators, offering voice, messaging, data, entertainment and financial services to a total of 452 million customers in Africa, Europe and India.

Sumitomo Corporation’s diverse operations include mobile telephony and development of the latest 5G technology that is being built around the world.

CDC Group, which has a £4.7 billion (Sh704 billion) war chest, is expected to help in funding the capital-intensive venture.

The consortium has also lined up a $500 million (Sh54 billion) loan from America’s sovereign wealth fund US International Development Finance Corporation.

Safaricom had earlier said that the Ethiopian licence could cost more than $1 billion (Sh107 billion).

Winners will also spend heavily in building their infrastructure, among other costs.

MTN is also confident that it has assembled a strong consortium in terms of operational experience and financial capability.

“MTN Group confirms that it is participating with equity partners in a bid for a telecoms licence in Ethiopia, Africa’s second most-populous country, which represents the last and largest telco liberalisation opportunity in the world,” the Johannesburg-based multinational said in a statement.

“Our participation is aligned with our strategy, Ambition 2025, focusing on capturing growth from digital acceleration across the continent. It has been made in partnership with Silk Road Fund from China. Other partners will be disclosed on a successful bid outcome.”

MTN has 280 million subscribers in 21 markets in Africa and the Middle East. The Silk Road Fund is a Chinese government institution with a total asset base equivalent to Sh6 trillion.

It primarily makes equity investments in countries or projects involved in China’s ambitious global infrastructure development plan called Belt and Road Initiative.

While both Safaricom and MTN have substantial financial backing, they have emphasised that they will not overpay for the Ethiopian licences.

“We are being guided by our capital allocation framework in our assessment of this opportunity,” MTN’s chief executive, Ralph Mupita, said in a statement.

In an earlier session with analysts, Vodafone chief executive Nick Read said Ethiopia presents a big growth opportunity but noted that the company will ensure that the capital investment is reasonable.

“We’re looking at the opportunity, but you’ll remember when I was running the Africa, Middle East and Asia-Pacific (AMAP) region we looked at several opportunities throughout Africa,” he said.

“We are very disciplined in the way we look at it. Don’t forget Myanmar was an example, where I also looked at Myanmar, and we decided not to proceed because they set the licence conditions at too high a level that I didn’t feel we could earn local market weighted average cost of capital and earn a good return on that asset. We will remain disciplined.”

The stakes to be held and the amounts to be invested by each partner in the Safaricom consortium are yet to be determined. The telco said the deal will be structured in a way that will offer the necessary flexibility to the participants.

“For structuring purposes, the respective consortium members may invest through special purpose investment vehicles,” Safaricom said in a statement on Monday.

Editor's note: Story has been updated to indicate that the other bidder is South Africa's MTN Group subsidiary MTN International Mauritius.