Category Archives: tanzania

Vodacom IPO launched in Tanzania: a Prospectus Peek

Quick note excerpts from the 140-page Vodacom IPO prospectus. There’s even a Swahili version  (PDF) of this Vodacom Tanzania PLC prospectus.

About Vodacom

  • Vodacom Tanzania PLC is a subsidiary of Vodacom Group (South Africa), which in turn is a subsidiary of Vodafone Group Plc (UK). Vodacom Group Limited is the beneficial owner of 82.15% of Vodacom Tanzania. Mirambo Limited directly holds the remaining 17.85%.
  • Vodacom is Tanzania’s leading mobile operator. Market share: Vodacom Tanzania (31% ), Tigo (29%), Airtel (26%), Halotel (7%), Zantel (4%), Smart Telecom (2%), TTCL (1%)
  • In 2016 Vodacom had 12.38 million customers (including 5.4 million active data customers) and an ARPU of TZS 5,972. Vodacom Tanzania has 570 employees, 189 nationwide retail points, in excess of 17,000 freelance distributors and 75,000 mobile money agents.
    Vodacom is part of a “consortium” (with Tigo, Airtel, Zantel) that has constructed about 400 km of metro fibre, in Dar es Salaam, Dodoma, Morogoro, Mwanza and Arusha, as well as over 1,300 km of backbone fibre linking the major cities of Dar es Salaam, Dodoma, Arusha and Moshi.
  • Vodacom Tanzania estimates that the total net proceeds from the Vodacom IPO issue of 560 million new shares, after deducting expenses (and assuming that the offer is fully subscribed), will be TZS 469 billion (~$210 million)

Use of proceeds:

  • Vodacom Tanzania intends to apply such net proceeds to:
    (i) The execution of inorganic growth opportunities geared towards growing and maintaining Vodacom Tanzania’s leading market position (elsewhere the prospectus mentions that Vodacom Tanzania may consider mergers, acquisitions or strategic investments),
    (ii) Working capital augmentation for Vodacom Tanzania; and
    (iii) general corporate purposes for Vodacom Tanzania (elsewhere it mentions that part of the Vodacom IPO proceeds will be used to repay loans from the Vodacom Group and Mirambo).

Risks & Regulation

  • (this is a) Forced listing & IPO: The Company converted from a private limited company to a public limited company in November 2016. Following the 2016 Finance Act, all licensed telecommunication operators are to have a minimum local shareholding of 25% of their authorized share capital issued to the public and listed on the Dar es Salaam Stock Exchange (DSE).. penalties may be imposed by TCRA should the IPO not take place within six months from 1 July 2016.

Non-compliance:

  • The Bank of Tanzania allowed Vodacom Tanzania to continue offering Mobile Money Services whilst the license applications are pending (it has applied for Payment System License and will apply for an Electronic Money Issuer License)
  • Vodacom Tanzania is also working on forming a separate M-Pesa corporate entity to comply with regulations.
  • Vodacom Tanzania is working on a project plan to migrate all its Network Operating Centre (NOC) operations to Tanzania to comply with an in-country NOC requirement.
  • Vodacom Tanzania is also working on network optimisation and modernisation initiatives to ensure compliance with Quality of service (QOS) obligations.

Government Moves

  •  Issuance of new licenses: presents a risk to the profitability of the company. The awarding of a new license to a new operator last year saw the advent of an eighth licensee to an already intensively competitive market. 99% of Vodacom Tanzania’s customers are prepaid (But) It is unlikely that there will be a new entrant into the Tanzania telecommunication market. Any new player in the Tanzania market should not pose a significant competitive challenge in the period to 31 March 2018 because of market penetration and lead time to setting up a telecommunication network.
  • Spectrum: Vodacom Tanzania is on record that it requires additional spectrum to meet quality of service requirements (QOS), especially for data services. The decisions taken by the Government on the timing, fees, and allocation of digital dividend and other spectrum will have a major impact on Vodacom Tanzania’s ability to serve its customers,
  • Tax Risks:  “The complex tax environment in Tanzania poses a number of challenges to Vodacom Tanzania.”  Two new taxes going up may affect Vodacom Tanzania’s profitability: Draft amendments to the UCSAF Regulations seek to increase the service levy from 0.3% of service revenue to 1% of service revenue while a draft revision of the Local Government Finances Act (LGFA) proposes an increase in the rate of service levy charged from the current 0.3% to 1.5% of turnover net of value added tax and excise duty for all businesses. The LGFA further proposes to empower local government authorities to impose levies on telecommunication transmission towers.
  • Vodacom Tanzania already has a number of tax matters and litigations that are pending at various appellate levels. Tax litigation with the Tanzania authorities over TZS 100 billion  (~$51m) calculated on issues like undersea fibre, towers, foreign exchange, losses, withholding taxes, VAT, roaming, interconnection licenses capital allowance). There’s also a potential $500 million from a tort conspiracy case over frequency allocation and a half dozen other staff cases.

Performance:

  • Vodacom Tanzania’s audited annual Accounts for the years ended 2014 and 2015 showed a profit before tax was TZS 166 billion in 2014, TZS 78 billion in 2015 (from revenue of TZS 908 billion). For 2016 it was 74 billion in 2016 (from revenue of TZS 923 billion)
  • They project a project a pre-tax profit of TZS 82 billion for March 2017 and  TZS 137 billion for March 2018

Strategies

  • Continue to grow M-Pesa There has been the phenomenal success story of mobile financial services in Tanzania, where Vodacom Tanzania remains the market leader in terms of customer share and has significant brand equity…Vodacom M-Pesa makes up in excess of 20% of Vodacom Tanzania’s service revenues
  • Benefit from Vodafone: Vodacom Tanzania will, however, remain part of the Vodafone Group and will continue to benefit from their scale of operations and expertise.
  • Vodacom Tanzania may consider mergers, acquisitions or strategic investments.

Other Companies

  • In 2016, the Group acquired 100% of Shared Networks Tanzania (SNT) from its shareholders for $15 million
  • The group remains committed to its decision to exit its investment in Helios Towers Tanzania (HTT ), an associate in which the group holds a direct investment of 23.78%. In September 2013, Vodacom Tanzania PLC decided to sell and lease back its passive equipment to HTT.

Vodacom IPO Expenses

Issue expenses are estimated at TZS 7.1 billion (about $3.9 million) and include amounts for the lead advisor and sponsoring broker’s fees (Orbit Securities) TZS 650M, lead receiving bank fees (National Bank of Commerce) TZS 872M, Capital Markets & Securities Authority fees TZS 283M, Dar es Salaam Stock Exchange listing fee of TZS 1 billion, and all authorised collecting agents will share TZS 3.8 billion.

For Investors

  • 560 million new shares (or 25%) are being sold, and all the shares will be listed on the DSE. Vodacom IPO shares will only be sold to Tanzanian citizens and entities incorporated in Tanzania in which Tanzanian citizens have a majority beneficial ownership (no shares for East Africans unlike previous IPO’s in the region)
  • The minimum investment is TZS 85,000, equal to about $38 or KES 3,926. This is for 100 shares at TZS 850, and after that buy in multiple of  10 shares.
  • Buy via phone: Using their phones, Tanzanians can apply for shares through the DSE platform (dialling *150*36#) and also pay for shares via M-Pesa (by dialling *150*00# and entering the business number 236622, and a unique DSE reference number)
  • After the IPO. the public will own 25% alongside (Vodacom and Mirambo), and the dividend policy is to pay out at least 50% of earnings after tax but at the discretion of the board of directors. (31 March 2016 EPS was 34.65 TZS and the group expects to pay dividends of TZS 16.5 billion in FY17.
  • Timetable: The Vodacom IPO opened on 9th March, and closes on 19th April. The results will be announced on April 28, the listing will be on 16 May, and an AGM is scheduled for 1st June 2017.

Will the Vodacom IPO be as successful as the Safaricom IPO was in Kenya a decade ago?  The Vodacom IPO certainly seems to be selling well, attracting lots of first time Tanzania investors, in the first two days.
100 USD equals 223,000 TZS and 100 KES = TZS 2,165.

Plane Moments: Mostly KQ

 

  • Precision Air:  Kenya Airways and it’s associate company, Precison Air Services are working on a commercial alignment with respect to pricing on joint venture routes. They have applied to Kenya’s Competition Authority for an exemption as the regulator does not allow two similar airlines to have the same ticket pricing. Read more on Precision Air in which Kenya Airways has a 41% shareholding.
  • Kenya Gets Protectionist:  Kenya is limiting the issuing of new licences for global airlines seeking to exploit the strategic Nairobi hub in a protectionist move aimed at reviving the dwindling fortunes of national carrier Kenya Airways. Transport Ministry Principal Secretary Irungu Nyakera said Kenya is doing what the US and the European Union are doing, limiting the frequency of Middle East carriers because they have realised they are killing their own airlines, leading to job losses.  
  • Tanzania is revamping its national carrier by buying new planes as part of plans to boost tourism and transport sectors.  The country received delivery of two Bombardier Q400 planes in September at a cost of $62 million and has also made initial payment for the purchase of a Boeing 787 Dreamliner, which is expected to be delivered on June 18.
  • Nigeria airline takeovers: The takeover of the nation’s biggest airlines, Arik and Aero airlines by the undertaker, the Asset Management Corporation of Nigeria (AMCON) may have exposed some management lapses in the private sector.. some of Arik’s missteps to include “starting off its international services with the gas guzzling ultra long-range Airbus A340-500s literally guaranteeing losses on its relatively short-range services to London, South Africa, New York and Dubai. It also bought 10 of the relatively cost inefficient Boeing 737-700s used mostly by short-haul, low-cost airlines like Southwest Airlines. It only has four of the more efficient and versatile Boeing 737-800s suitable for high-capacity routes such as Lagos to Abuja and Lagos to Port Harcourt, as well as regional routes to West and Central Africa.”
  • RwandAir will start direct flights to India’s commercial centre Mumbai on April 3…it also plans to start flights to Gatwick, London’s second-busiest airport, and to the US this year as part of its strategy to serve more global markets.
  • The CEO of apologized for customer frustrations  over the last few months.  They have since introduced a new introduced a brand new Bombardier Q400 next generation aircraft to further enhance flight schedule integrity.
  • Etihad Airways Engineering has signed an agreement with Kenya Airways to perform mandatory checks on its six Boeing 787-8’s between February and October 2017.  Etihad Airways Engineering is the largest commercial aircraft maintenance, repair and overhaul (MRO) services provider in the Middle East.

 

Twiga Bancorp Closure

Just a few days after Uganda shut down Crane Bank, in Tanzania, the governor of the Bank of Tanzania announced a takeover of Twiga Bancorp, citing a deteriorated capital position that jeopardized its operations.

twiga-bancorpUnder the takeover, the board and management were suspended and a new statutory manager appointed and the bank was to  stay closed for one week while new arrangements were made.

According to a 2012 Tanzania bank report by Serengeti Advisors, Twiga was a relatively small bank, ranked 28th out of 45 banks in the country. It was wholly owned by the Government of Tanzania and had 4 branches. It had $42 million in assets, $24 million of loans and deposits of $34 million. Its capital base was $3.4 million and it made a profit in 2011 of $189,000.

Bank Mergers & Musical Chairs in 2016

There’s a moratorium on new banks licences, but still a lot happening in the ownership suites.
Who’s In
  • Bank M (of Tanzania) has bought out and rebranded (the former) Oriental Commercial Bank.
  • Sidian Bank: Centum bought out and rebranded (the former) K-Rep bank.
  • Spire Bank: Mwalimu SACCO bought out and rebranded (the former) Equatorial Commercial  bank.
Who’s Hanging On
  • Chase bank now reopened, but yet to resume lending. An ownership decision  is expected soon (process being managed by KCB)
  • Credit bank:  Discussions are ongoing about a sale to  FEP Holdings
  • Imperial bank (assets will be assessed and managed by NIC bank)
Who’s on the Way Out
  • Dubai bank (proceeding into liquidation)
  • Giro bank which has been bought out by I&M bank.
  • edit The CFC brand as CFC Stanbic Bank and CFC Stanbic Holdings (i.e group) becomes Stanbic Bank Kenya and Stanbic Holdings PLC respectively  – this comes about nine years after their merger of CFC and Stanbic banks.

Kenol Kobil 2016 AGM

KenolKobil had its annual shareholders meeting on May 12, at the Hilton Hotel in Nairobi. The board chairman spoke of the company’s performance in the three years since they had lost Kshs 6.2 billion. They had thereafter embarked on a turnaround that involved reducing costs, divesting from non-performing territories, focusing on profitable business rather than growing their market share, paying down debt, and corporate governance moves (separating the role of  Chairman & CEO role) .

Highlights

Regional Business: 

  • Tanzania: The company would up their short foray in Tanzania where they were losing $2 million a year. They had a depot that was part of their venture was an expensive lease, and while fuel prices in Tanzania are set by the government, many companies sell below that price as they don’t pay taxes. The directors said that Kenol was a responsible company that could not and decided to close shop.
  • DRC: They invested here, but did not ship product there as they were not happy. with the business climate and decided to sell out.
  • Burundi is doing well despite the political turmoil there.

The board faces shareholders at the 2016 KenolKobil AGM

Dividends: One shareholder said the dividend was too low, but the chairman said they have a consistent policy of paying 25% of net  profit as dividend, while the Group MD (GMD) said they still had to pay down a lot of debt.  One long-term shareholder told the meeting, that it was better for the company to be conservative with dividends, rather than aggressive, like other companies, and come back in a  few years to ask shareholders to invest more money in a right issues

Property: They have decided not to put up an office building in Haile Selassie street in downtown Nairobi for now as the office property market is saturated.

Goodies: Lunch box (which Hilton guards would not allow to be eaten on site), and tote bag. Some shareholders pleaded for the company to provide them with caps and umbrellas to promote the brand.

Odd Point: One shareholder asked why the AGM had not started with  prayers. The Chairman said it would not be productive, as they would have to have prayers for Christian, Muslim, Jewish, and traditional African religions  to be fair to all shareholders present.