Safaricom is tempting investors with a tax-free Sh15 billion green bond for environmentally-friendly infrastructure upgrades in Kenya and Ethiopia.
The telcoms operator is offering 10.4 percent ta- free return to those who invest in its five-year bond, which closes on December 5.
Safaricom’s bond issue comes weeks after East African Breweries limited (EABL) offered 11.8 percent to investors in the first tranche of its Sh20 billion bond.
However, investors in the Safaricom security will be taking home a higher return as the green bond does not attract 15 percent withholding tax that is payable on interest earned from corporate bonds like the one issued by EABL.
This means the Safaricom bond is offering an equivalent of 12.35 percent if it were tax inclusive – being a higher yield than EABL’s 11.8 percent return.
Safaricom is seeking billions of shillings to broaden its 4G and 5G networks as it ramps up its data business to offset a decline in mobile calls, where it has seen a small revenue fall due to saturation.
Data is one of Safaricom's fastest-growing revenue lines and it hopes that increased smartphone usage will boost it further.
In Ethiopia, it plans to boost its network expansion and ease cash flow for the subsidiary where it owns a 53.7 percent stake.
So-called green bonds are fixed income securities that raise capital for projects in renewable energy, energy efficiency, green transport and waste-water treatment.
Safaricom is raising the funds to carry out sustainability projects in Kenya and Ethiopia. The projects are hinged on five pillars, which include energy efficiency, use of renewable energy, green buildings, pollution prevention and environmentally sustainable management of living resources and land use.
Some of the projects include use of solar energy to power its sites, upgrades to 5G networks, renovate existing building to make them green compliant, implement AI backed programs to reduce energy consumption.
The telcom will have a 24-month window to put the bond proceeds in the sustainable projects during which it will have an option to invest the funds in other income earning assets.
“As at the date of this Information Memorandum, interest income payable on the Notes under any Tranche that are certified to be used to raise funds for infrastructure, projects and assets defined under Green Bonds Standards and Guidelines, and other social services, where such Tranche has a tenor of at least three (3) years will be exempt from withholding tax,” reads Safaricom’s Information Memorandum.
Safaricom can raise a maximum of Sh20 billion from the first tranche in case of an oversubscription as it can take an extra Sh5 billion in what is termed a greenshoe option.
The green bond comes at a time when interest rates have been on a downward trend as the Central Bank of Kenya rejects high-priced money in Treasury bills and bonds markets.
Currently, a 10-year bond is trading at 13.05 percent, being 2.87percentage points lower than rates offered a year ago.
“Despite the lower yield, we anticipate strong, potentially oversubscribed demand for the note, supported by the company’s low-risk credit profile, large customer base, and the growing global and local appetite for ESG-linked investments,” said Valerie Okello, a research analyst at Capital A Investment Bank.
EABL raised Sh16.7 billion in the first tranche of its Sh20 billion bond in which it was targeting Sh11 billion signalling market appetite for well rewarding corporate bonds.
“Environmental Social and Governance instruments are typically floated below market rates to attract the expanding pool of sustainability-focused investors, and Safaricom is leveraging both the greenium narrative and the broader social impact of the note to justify the modest pricing,” said Ms Okello.
She noted that issuing a corporate bond is a more cost-effective funding option for Safaricom compared to sourcing bank loans, which would likely come at significantly higher rates.
Safaricom’s first corporate bond is expected to revitalise a debt market which has been in a lull for years as Treasury bonds dominate. Only Sh25.9 billion worth of corporate bonds were outstanding at the NSE at the end of September, including notes by EABL, Family Bank, the Kenya Mortgage Refinance Company, Linzi Finco Trust and Batian Income Properties.
The corporate debt segment was dented by issuers who went belly up soon after issuing their notes, including Imperial Bank.
Micro-lender Real People, which has Sh1.63 billion in outstanding notes, also ran into financial headwinds soon after issuing its medium-term notes.
Safaricom reported a 52.1 percent rise in its half-year profit to Sh42.7 billion, helped by a smaller loss in Ethiopia and M-Pesa’s double-digit growth.
Its net profit grew from Sh28.11 billion the previous year, and it expects to declare an interim dividend in February.
The Kenya business continued to be the main profit driver on the back of M-Pesa, the firm’s largest unit and on course to generate half of the telco’s revenues.
Its reported loss in Ethiopia dropped by 59 percent compared to the first half of the previous financial year, which was heavily impacted by a depreciation of the birr currency.
The loss in Ethiopia that is attributed to Safaricom dropped to Sh15.2 billion from Sh19.4 billion in the same period a year earlier, translating to a gain of Sh4.2 billion.
Safaricom launched in Ethiopia in 2022 as the Addis government opened up the tightly-controlled economy to foreign competition and is hoping its presence in Africa's second most populous country will power future growth.
Its diversification from the saturated voice and SMS business is paying off, with M-Pesa, mobile data and fixed internet emerging as sales drivers.
Safaricom’s revenue rose to Sh199.9 billion in the six months to September, from Sh179.9 billion in the same period a year earlier, reflecting a 11.1 percent growth.
Revenue from mobile financial service M-Pesa rose to Sh88.1 billion from Sh77.2 billion previously, reflecting a growth of 14 percent.
