Category Archives: Vodacom

Safaricom Governance Changes

Appearing in today’s newspaper was a notice for the Safaricom shareholders annual general meeting (AGM) that will take place on September 1. In addition to the usual shareholder resolutions, there are additional matters that will be approved, mainly relating to governance by at Safaricom. This all follows the buyout of UK’s Vodafone stake in Safaricom, by South African Vodacom in an internal Vodafone group corporate realignment earlier this year that has now been completed.  A running theme seems to be entrench Kenyan citizens in the governance and influence at what is now Kenya’s most valuable company.

Some of the changes:

  • The company Chairman shall be a Kenyan (this is now going to be mandatory and is spelled out in the company’s articles of association)
  • Directors shall encourage retention of a “Kenyan character” in the senior management and executive committees of Safaricom.
  • The articles are also changed to spell out that that independent non-executive directors of Safaricom, shall all be Kenyan citizens.
  • The position of Deputy Chairman is eliminated.
  • Directors appointed by Vodafone shall be excluded from voting on agreements relating to M-Pesa.
  • Directors appointed by Vodafone are to vote in the interest of the company (Safaricom) if its growth and investment decision clash with those of Vodafone.
  • Directors shall appoint the Managing Director Previously as indicated in documents from the Safaricom IPO, Vodafone directors had veto power over the appointment over approval of business plans, annual budgets, the appointment of the Managing Director (Chief Executive Officer) and appointment of the Financial Director (Chief Financial Officer). Now, the Safaricom articles will change to read that “75% directors must approve these provisions” including a new one of “any material change to the company brand”. Shareholders at the AGM will also approve a name change of the company to “Safaricom PLC” in compliance with Kenya’s new companies law for listed companies to be “PLC”

Farewell Safaricom Kenya, Hello Africa

Two weeks ago, Vodacom minority shareholders vote in favour of the Safaricom transaction, an acquisition of 35% of Kenya’s leading Telco from Vodafone (UK) – in a deal valued at 35 billion rand (275 billion shillings / $2.7 billion). This they did by approving of purchase of the entire 87.5% of Vodafone Kenya from Vodafone in exchange for 226 million new shares in Vodacom South Africa and not more than 50 million rand in cash (and within two years, Vodafone will sell up to 36.3 million of these shares to comply with SA listed company rules)

The Vodacom group has 66 million customers and 13 million m-pesa ones – and will add on 28 million Safaricom ones (including 19 million m-pesa ones) who use over 100 different products. 

Some excerpts from official Vodacom documents:

  • The transaction would further enhance its position as a leading African mobile communications company and acquiring Safaricom provides Vodacom with a unique opportunity to diversify its financial profile in a single transaction (as at June 2017 about 80% of their 20.7 billion rand group revenue for the quarter was from south Africa)
  • Vodacom Group Chief Executive Shameel Joosub: This is an exciting deal that provides Vodacom shareholders with access to a high growth, high margin and high cash generating business in the attractive Kenyan market. The proposed transaction increases our presence in East Africa and makes Vodacom a formidable player in financial services on the continent.

For Safaricom:

  • The deal was expected to conclude on August 1 and “The proposed share swap is expected to bring to an end a clause that barred Safaricom from venturing outside Kenya ” and “ While Safaricom will still not be free to enter Vodacom markets in Africa, it will now move to new countries where the South African firm does not have a presence. Vodacom will in turn be free to use M-Pesa in its markets” (Vodacom owns stakes of 65% in Tanzania where they have 12 million customers, 51% in Congo with 10 million customers, 85% in Mozambique with 5 million customers (and 2.5 million m-pesa ones), and 80% in Lesotho where they have 1.5 million customers).
  • Vodacom intends to pay 90% of earnings as dividends.
  • For accounting purposes, Vodacom will treat the 39.93% Safaricom stake as an investment in an associate company.
  • Vodafone Kenya currently has a right to appoint, remove and/or replace four of Safaricom’s ten directors – and these rights will move to Vodacom, but Vodafone will have the right to nominate one of the four directors (as long as it retains at least 12.5% of Vodafone Kenya.
    It is expected that Vodafone/Vodacom will still decide who the CEO and Financial Director are (…the appointment of any Managing Director/CEO and the Financial Director/CFO is the responsibility of the Board and is subject to a veto by any Director appointed by Vodafone Kenya)

EAVCA: East Africa Private Equity Snapshot

Ahead of the 3rd Annual Private Equity in East Africa Conference, (taking place on June 15 in Nairobi) the East Africa Private Equity & Venture Capital Association (EAVCA) and KPMG East Africa released their second private equity survey showing increased funding and activity, and with a lot more opportunity for deals to be done.

They estimated that of the $4.8 trillion raised between by P/E funds globally between 2007 and 2016, about $28 billion was raised by Africa-focused funds and $2.7 (including $1.1 billion in 2015-2016) had been earmarked for investment activity in East Africa.

This private equity had funded over 115 deals in the period that were included in the survey. Out of these  the 115 deals, 23 were agri-business, 20 were financial services, 13 manufacturing, and 12 FMGC representing 59% of deal volume. The average deal size had also grown to the $10-15 million range, while in the initial survey it was below $5 million.

East Africa Private Equity Survey

Of the 115 deals, Kenya had 72 deals (63% of the total), Tanzania 19, Ethiopia 8, Uganda 12, and Rwanda at 4. Some of the large deals in the survey, by country, include:

Rwanda: Cimerwa – PPC ($69M), Cogebanque ($41M), BPR-Atlas Mara ($20M), Pfunda Tea ($20M)
Uganda: topped by oil deals CNOOC and Total SA (both $1,467 million), Tullow $1,350M, Total $900M, CSquared-Mitsui $100M, Sadolin-Kansai $88M
Ethiopia: National Tobacco – Japan ($510M), Meta Abo-Johnnie Walker ($255M), Dashen-Duet ($90M), Bedele-Heineken ($85M) and Harar-Heineken ($78M), Tullow-Marathon ($50M)
Tanzania: Africa Barrick Gold ($4,781 million), Tanzania – Pavilion ($1,250M), Vodacom ($243M), Export Trading Co ($210M), Millicom-SREI ($86M), Zanzibar Telecom-Millicom ($74M)
Kenya: Safaricom-Vodacom ($2,600 million), Africa Oil-Maersk ($845M), I&M-City Trust ($335M), Ardan-Africa Oil ($329M), Kenya Breweries-EABL $224M, UAP-Old Mutual ($155M), ARM Cement-CDC ($140M), Wananchi ($130M), CMC-AlFuttaim ($127M), Essar ($120M)

P/E operations: There are about 72 funds operating/focused in East Africa (up from 36 in the first survey) with over 300 employees. 89% of the survey respondents have a local presence in East Africa.

Some of the fund companies that responded to the survey include Acumen, Abraaj, AfricInvest, AHL, Ascent, , Catalyst, Centum, CrossBoundary, Grofin, Emerging Capital Partners, Kuramo, Metier, Mkoba, NorFund, Novastar, Phatisa, Pearl Proparco, Swedfund, and TBL Mirror

Returns:  Of  the deals done, survey responders had an average IRR target was 22% while the actual IRR achieved was 19%.  There were 34 exits between 2007 and 2016, with increased recent activity; 2014 (had 7), 2015 (7) and 2016 (6). The preferred mode of exit is sale to a strategic investors (preferred by 78% while this mode accounts for 38% of exits) followed by share buy backs (32%), then sales to another P/E (21%).

Many of the funds in the region are still in early stages, and 54% have made nil returns to their investors. They surveyors estimate there are more opportunities for Africa private equity in health, education, retail, and manufacturing sectors.

Vodacom buys Vodafone Stake at Safaricom

Early this morning a surprising news story first appeared at Bloomberg about Vodacom buying shares at Safaricom. Early interpretations of the story had the Kenya government selling their entire 35% of their most valuable investment to Vodacom.

But later, the official statement from Vodafone (and Safaricom) confirmed that Vodafone was the one selling 35% of their shareholding to Vodacom. It includes a statement by Safaricom CEO, Bob Collymore that the deal “promotes the continued successful expansion of the company as well as the opportunity to drive M-PESA to other markets in the continent.”

  • Safaricom had announced another record earnings year year, last week.
  • Will there be a rebrand to Vodacom? Safari com may be constrained by operating in Kenya. Vodacom just had an IPO in Tanzania whose outcome is pending and M-Pesa has had tremendous strides in Tanzania.
  •  Former Safaricom CEO Michael Joseph resigned from the Vodafone a month ago to concentrate on his role as Kenya Airways Chairman.
  • Vodafone will remain with 5% of Safaricom – down from 39.93%.

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.

EDIT August 9 – Official results: Vodacom Tanzania is delighted to announce that the IPO has raised TZS 476,000,085,000 as planned. Of this amount, 60% of the Offer was raised through subscriptions by Tanzania investors and 40% of the Offer from international investors. This is a significant landmark transaction for the country, being the largest IPO in the history of Tanzania’s capital markets and has attracted more than 40,000 Tanzanian investors, most of whom are first time participants in the capital markets in Tanzania.

EDIT Vodacom Tanzania shares started trading on August 15. Shares in Vodacom Tanzania Plc, part of South Africa’s Vodacom Group, rose nearly 6 percent above their issue price in their debut on the Dar es Salaam Stock Exchange on Tuesday.  Vodacom placed 560 million shares at 850 shillings each in Tanzania’s biggest initial public offering (IPO), raising 476 billion Tanzanian shillings ($213 million).