Safaricom has made a significant step to making its foray into Ethiopia a reality following the signing of an agreement with its business partners to borrow up to $500 million (Sh55.7 billion) from America’s sovereign wealth fund US International Development Finance Corporation to finance its entry into the neighbouring country.
The telco and its parent companies, Vodafone and Vodacom have formed a joint investment vehicle dubbed Global Partnership For Ethiopia through which they are bidding for one of two telecommunications licences being auctioned in that country.
Worth noting is that the total investment in the Ethiopian venture is expected to exceed $1 billion (Ksh111 billion) through which they are bidding for one of two telecommunications licences being auctioned in that country. Consequently, the IDFC loan is just an initial figure.
“An up to $500 million (Sh55.7 billion) loan to the Vodafone-led Global Partnership for Ethiopia that will finance the design, development, and operation of a new private mobile network provider and the acquisition of a mobile network provider licence,” DFC said in a statement.
“The project is expected to have a highly developmental impact through the creation of a new private telecommunications network that will increase connectivity in Ethiopia while utilising trusted technology.”
In previous communication, Safaricom had intimated that it would acquire more loans to reflect its standing as the majority shareholder holding 51% stake in the venture.
Vodacom is listed as a 5% shareholder in the venture with the rest of the equity being held by various unidentified stakeholders.
It is expected that DFC will advance the loan to the partners at favourable terms..
The international financier says its loans typically mature between five and 25 years, with repayment schedules set on quarterly or semi-annual basis.
A grace period on principal repayment at the beginning of the loan term is also common.
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.
Safaricom’s borrowings have so far been limited to local banks from which it has mostly taken short-term debt denominated in Kenyan shillings.
The company recently raised its bank borrowings to a new high of Ksh32.7 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 lower 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.
The interested parties include 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.
Safaricom was allowed to lead the consortium for several reasons, including Kenya’s geographical proximity to Ethiopia.