Safaricom shortlisted for Ethiopia telco licence bid

Safaricom #ticker:SCOM has made it to the shortlist of six firms that have been cleared to bid for one of two Ethiopian telecoms licences that will be offered this year.

The Ethiopian Communications Authority has whittled the list down from a consortia of 12 that had expressed interest in entering the country’s telecommunications market.

Firms will be required to submit their technical and financial bids by April 5, compared with a previous deadline of March 5.

Safaricom, which last year expressed an interest in a consortium with Vodafone and Vodacom, has signed an agreement to borrow up to $500 million (Sh55.7 billion) from America’s sovereign wealth fund US International Development Finance Corporation (DFC) to fund the Ethiopia expansion

“There are about five to six consortia who are qualified to bid. Bids are due to be submitted in April,” said Michael Joseph, Safaricom chairman, in an interview. “We are working towards the final submission around March/April.”

The Horn of Africa nation’s telecoms industry is considered the big prize due to the huge size of the market, which serves more than 100 million people.

Ethiopia is pressing ahead with the auction of the new licences and the sale of a 45 percent stake in state monopoly Ethio Telecoms, in spite of a military conflict in the northern Tigray region.

Winners will be given full operating licences, but they will not be allowed to offer mobile phone-based financial services like M-Pesa, government officials said last year.

They will also be required to set up their own network infrastructure, such as cellphone towers.

The financial investment in Ethiopia is expected to top the $1 billion (Sh111 billion) mark, with the DFC loan deal seen as part of the project’s fundraising efforts.

Safaricom had earlier said it was ready to take more debt in its role as the majority shareholder of the consortium with a 51 percent stake.

Vodacom has a five percent interest in the joint venture, with the rest of the ownership spread among unnamed strategic financial investors.

The Safaricom consortium, if successful, will likely rely on funding from deep-pocketed foreign investors such as DFC given the size and international nature of the Ethiopia investment.

The Nairobi Securities Exchange-listed firm’s borrowings have so far been limited to local banks from which it has mostly taken short-term debt denominated in Kenya shillings.

The company recently raised its bank borrowings to a new high of Sh32.7 billion to fund capital expenditure and pay dividends, with most of the debt expected to be settled by March next year.

Safaricom sees Ethiopia, a market with more than 100 million people and relatively low uptake of mobile and broadband services, as presenting significant growth opportunities.

The Ethiopian Communications Authority announced that it had received expressions of interest from scores of firms, including telcos and non-telecom operators by June 22.

They included the Safaricom consortium, Etisalat, Axian, MTN, Orange, Saudi Telecom Company, and Telkom SA.

Others were Liquid Telecom, Snail Mobile, Kandu Global Communications and Electromecha International Projects.

The Ethiopian Communications Authority is yet to disclose which of these firms have been dropped from bidding.

Vodacom recently told its investors that the capital expenditure for the potential Ethiopian entry was not yet clear.

The South African telco added that while it was limiting its exposure in the consortium to five percent, it could raise its ownership after a couple of years into the operation.

Safaricom was allowed to lead the consortium for several reasons, including Kenya’s geographical proximity to Ethiopia.

“I think it will be a very good exposure to Safaricom from the perspective of geographical closeness on the one perspective, but also giving Safaricom additional exposure to more growth areas,” Vodacom’s chief executive, Shameel Joosub, said in a recent earnings call.

Players like Safaricom are attracted by the growth potential in the Ethiopian market, whose 100 million population offers a penetration rate of 44 percent. Kenya’s 52.2 million mobile phone subscribers give it a penetration of 109.2 percent.

Ethiopia’s nascent telecommunications sector is considered one of the most lucrative in the economy as the once inward-looking country opens up to foreign investment for the first time. Addis Ababa has kept foreign involvement in the economy at a bare minimum.

“Mobile phone use and ownership are significantly behind that of Egypt, Kenya, and even Sudan, which is amplified when examining the uptake of mobile broadband services,” said the World Bank earlier. The institution is advising Ethiopia on the telecoms transactions.

Besides selling the new telecoms licences, the Ethiopian government is also disposing of a minority stake in Ethio Telecom, which has a monopoly in that market.

The transactions are part of economic liberalisation policies being implemented by Ethiopia.