Safaricom share talks with IFC nears end
Safaricom Group announces that negotiations with the International Finance Corporation (IFC) are on the brink of finalization to give some shares for the World Bank private sector wing. The telecommunications firm also expressed its preparedness to hit the ground running with its flagship M-Pesa service following the National Bank of Ethiopia’s go ahead after a USD 150 million financial service license fee payment paid on Tuesday May 9, 2023.
The new telecom entrant disclosed that it has anchored itself well in the first year of operation in the country and signaled that it will continue to invest massively to take significant share in the telecom and financial industry in Ethiopia.
The company leaders, who met with media through a webinar to explain their first year’s operation, indicated that the company is in continual negotiations with IFC to provide the financier with a share from the stake that Safaricom owns.
“We have been in discussion with them for long and we are currently at the last stage of negotiation. As it is well known they have expressed their interest to invest in equity as well as putting money on debt; equity on USD 157 million and a debt funding of USD 100 million from IFC upside. So we haven’t closed the deal yet, but we are hopeful that we can close it soon,” Dilip Pal, Chief Financial Officer at Safaricom PLC explained, adding, “They will come in as one of the minority shareholders. Of course all the other current consortium members will dilute a little bit but I wanted to confirm that Safaricom Group will still continue to hold the majority share and will consolidate in the group financials. So I think on the funding side we are quite okay since the entities are well-funded and well resourced.”
Regarding the operation in Ethiopia, Peter Ndegwa, CEO of Safaricom Group, pointed out that the telecom company hit 1,300 sites across 22 cities.
“We have 3 million customers who have joined our network of which just over 2 million are active on what we call a 90 day basis, which is fantastic. And now we are looking forward over the next few weeks to launch and start the journey of the much anticipated financial services,” he added.
On the same day that the company disclosed its operation in Ethiopia, the National Bank of Ethiopia issued a license to the east African mobile money giant for operation in Ethiopia through its popular brand M-PESA.
“We intend to be investing anywhere between USD 300 and 350 million annually in the rollout of our network to start creating a new mobile financial services business that will allow us to really enable digitization of ordinary lives of Ethiopians; to ensure that financial inclusion continues to be to be driven. We are excited about the future. We are equally happy with the progress that we’ve made since we launched the business in October last year,” Peter said.
To get the green light for the financial service, the company paid USD 150 million for the license fee.
“Of course from a Safaricom group perspective, as you know we are part of a consortium. So our proportionate share of 55 percent of USD 150 million is what we paid from the group as Safaricom,” Dilip disclosed.
He said in the coming one year the company expects to get a point of 3000 sites by end of March 2024 in addition to an investment capital expenditure (capex) of 40 to 45 billion Kenyan shilling, “Which is close to what we spent in Kenya. This is a large investment that we will be doing. There is no separate capex investment that you need to fund our services beyond what already is guided, which is available to see from the about 40 to 45 billion that includes everything relating to mobile financial services and rollout as well.”
“We have had a team that has been preparing for this for a long time. So we have the technology platform ready. We have a lot of the work around distribution recruitment of agents and so on, already underway. We have had numerous conversations with a lot of our partners, especially banks. All we were waiting for is registration and approval of a subsidiary and the payment of a license and approval of the license. When that unfolds, then we can go into contractual obligations with the various partners that will work with agents on the distribution side and banks on the commercial side,” Peter explained, adding, “We do have the suit of services, because we’ve come from a largely developed market. We tend to have the technology to be able to provide those, but the choice of where the timing or of when those will be provided is dependent on how quickly we can mobilize an infrastructure that allows customers to feel comfortable, that they can withdraw, deposit and send money, and that’s the way mobile financial services have grown in Kenya and other parts of the region.”
Regarding the hyperinflation, the International Accounting Standards Board has declared Ethiopia as a hyper-inflated economy in December, but as Dilip underscored, this will not deter the investments of the company.
“As a group, we have to comply and to make sure that the report that we provide to our stakeholders comply with the IFRS requirement, and that’s how we adopted the inflationary impact. As it shall be seen from the commentary, it is not a lot of impact that has gone into the financials. But we need to comply with the IFRS standards as a group,” he added.
As Peter underlined, of primary importance to the company is focus on the level of investment it needs to put in into that business, which is approximately USD 300 million as a sub set to USD 350 million over the next few years to reach a level of coverage that allows it to recruit the level of customers it wants to launch the mobile money, “We are aware that the Ethiopian government has a big reform program that is going to be undertaken that includes financial institutions, and probably a third player will be coming into the market.”
“We expect the Ethiopian foreign exchange regime to also benefit from a number of those financial services that the government is undertaking. So over time, we would see more stability but focus more on the investment profile and the commercial execution that we need to continue to drive over the next few years. Because that’s what will create the long term business that we want to have in Ethiopia,” he added.
According to Anwar Soussa, CEO of Safaricom Ethiopia, his company has less than 1,500 network sites and targets to this end to expand its infrastructure aggressively to get significant share in the market.
Safaricom Ethiopia also announced that it generated 223.03 million birr in revenue in its first year of operation. The telecom company has now about 3 million customers and operates in 22 cities. The company is also planning to roll out its services in Mekelle, Assosa and Nekemt.
