Safaricom’s stake in Ethiopia is set to decline by up to 15.5 per cent following an announcement by the International Finance Corporation (IFC) that it plans to buy shares worth Sh19.2 billion in the subsidiary.
Safaricom is the major shareholder in the Ethiopian telecommunication industry with a stake of 55.7 per cent. The entry of IFC as a shareholder could neutralise its presence in the country and cut its ownership to below the 50 per cent mark.
Vodacom Group, once affiliated to Safaricom PLC, holds 6.19 per cent share of the business while Sumitomo Corporation and British International Investment (previously known as CDC Group) enjoy stakes of 27.2 per cent and 10.9 per cent respectively in Safaricom Telecommunication Ethiopia PLC (STE), the recently established operating arm of the venture. The partners reportedly raised a total of Sh102.2 billion for the license fee.
Safaricom’s records indicate the joint partners contributed a total of Sh105.2 billion equity in the year ending March 2022. IFC is coming in with some Sh19 billion which means the joint partners would have a combined stake of 84.5 per cent.
Safaricom’s stake is expected to drop by about 47.1 percent, while those of Vodacom, Sumitomo and BII would decline to 5.23 percent, 22.99 percent and 9.21 per cent respectively. IFC’s new shareholding is expected at 15.46 percent, which would make the financier the third largest owner in STE behind Sumitomo.
Expansion into Ethiopia’s telecommunication market is capital intensive, since the financial investment is expected to surpass the Sh120 billion mark. These funds will understandably be raised mainly through debt. Safaricom had previously said it was ready to take more debt in its role as the majority shareholder of the consortium.
The telco giants perceive Ethiopia, a market with more than 100 million people and a relatively lower uptake of mobile and broadband services, as presenting significant growth opportunities. Similarly, the new project has ambitions of achieving gross margins of 40 per cent in 10 years. The target is backed by heavy investments that the subsidiary will make in hiring staff and building infrastructure to acquire customers in Ethiopia.
Other funding could also come from US International Development Finance Corporation, which in late 2020 signed an agreement to lend up to Sh60 billion to the consortium towards the Ethiopia project.
