Safaricom to retain control of Ethiopia unit


A Pedestrian walking past Safaricom Shop along Kenyatta Avenue in Nairobi on May 7, 2023. PHOTO | EVANS HABIL | NMG

The International Finance Corporation (IFC) will get under 10 percent stake in Safaricom Ethiopia on its planned $257 million (Sh35.3 billion) cash injection that has been split between debt and equity.

Splitting the amount between debt and equity will see Safaricom, which is the top shareholder in the Ethiopian unit with a 55.7 percent stake, retain a controlling stake.

Safaricom chief finance officer Dilip Pal said IFC equity investment will be capped at $157 million (Sh21.6 billion) while the remaining $100 million (Sh13.7 billion) will be injected in as debt.

“With IFC coming in, all the consortium members will be diluted in terms of our equity investment but we will continue to hold the majority shareholding. On the debt side, they are coming in and adjusting our capital structure,” said Mr Pal.

Vodacom Group holds 6.19 percent in Safaricom Ethiopia while Sumitomo Corporation and British International Investment (formerly CDC Group) control 27.2 percent and 10.9 percent respectively.

Safaricom chief executive Peter Ndegwa says the telco is comfortable with the structure of the IFC deal since the telco does not intend to lose control of the ownership of the business in the Horn of Africa country.

“We are going to cede some of this shareholding but our commitment is that we will never go below controlling stake. So, if IFC came in, they would have a number which is less than 10 percent,” said Mr Ndegwa.

“We will never lose control, based on all the agreements we have with all the shareholders, regardless of what happens.”

Safaricom and its partners paid $850 million (Sh116.8 billion) as telecommunications license fees and started commercial operations 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.

However, Mr Pal says the discussion was stopped when IFC came through with the deal.

“DFC discussion stopped at some point because of our more engaged discussion with IFC. Basically, we had a choice between IFC and DFC and I think IFC was more interested,” said Mr Pal.

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 license for mobile money in Ethiopia after paying investment license fees of $150 million (Sh20.6 billion).

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 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 Sh1.83 billion in revenue but the operating costs came in at Sh19.95 billion, leading to a loss after tax of Sh12.2 billion.

The shareholders have so far pumped $1.24 billion (Sh170 billion) into the Ethiopia unit, with Safaricom putting in $690 million (Sh94.8 billion). The estimated five-year capital investment is up to $2 billion (Sh275 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 were Sh48.44 billion.

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