- The Vodacom Group has signed an agreement that could allow it to purchase an additional 10.9% stake in Safaricom Telecommunications Ethiopia.
- The deal, if successful, will increase Vodacom’s stake in the newly formed telecommunications company to 17.1%.
- The South African-based multinational currently holds a 6.2% stake in the Ethiopian company through the Netherlands-registered investment vehicle Vodafamily Ethiopia.
Vodacom Group has signed an agreement that could allow it to purchase an additional 10.9% stake in Safaricom Telecommunications Ethiopia from UK sovereign wealth fund CDC Group at a cost of $ 1.74 billion (191.2 billion shillings) in the years to come.
The deal, if successful, will increase Vodacom’s stake in the newly formed telecommunications company to 17.1%.
The South Africa-based multinational currently holds a 6.2% stake in the Ethiopian company through the Netherlands-registered investment vehicle Vodafamily Ethiopia Holding Company.
“As part of the transaction agreements, Vodacom has granted a put option on the shares held by the CDC group in the holding company in order to facilitate the potential exit of the CDC group in the investment,” Vodacom said in an update. trading day.
“The CDC group can only put the shares at their fair market value (the total exposure of the put option is capped at $ 1,740 million (191.2 billion shillings), representing 10% of the market capitalization. Vodacom’s current stock market) from year 8 to year 10 from the year in which the Ethiopian operating company started commercial operations.
A put option is a contract that gives the buyer the right, but not the obligation, to sell a specified number of shares or other securities at a predetermined price within a specified time period.
In this case, CDC has obtained a guarantee that there will be a buyer for its participation in the future.
If the Ethiopian business proves successful and there are suitors willing to pay larger sums, the UK sovereign wealth fund can sell them and let Vodacom keep the premiums paid into the contract as profit.
If there are no other buyers, CDC will have the right to sell the stake to the South African multinational on the basis of fair market value and which will be capped at the fixed amount.
The deal demonstrates Vodacom’s confidence in the success of the Ethiopian operation, saying the phone company could be worth as much as 1.7 trillion shillings in a decade.
If Vodacom purchases CDC’s stake, it will have significantly increased its exposure in Ethiopia. The multinational also owns a 35 percent stake in Kenya’s Safaricom Plc, the Ethiopian firm’s majority shareholder with a 55.7 percent stake.
The other shareholder of the company is the Japanese conglomerate Sumitomo Corporation with a 27.2% stake. Vodafone Plc, which owns stakes in Safaricom and Vodacom, has a nominal interest in the Ethiopian business.
Members of the consortium signed agreements on September 10 to finance the new venture.
“Vodacom’s commitment to fund Ethiopia Opco is limited to its pro-rata 6.2% profit share, which should not be significant,” the multinational said.
Safaricom, as a lead member of the consortium, intends to provide additional information on the financing of the Ethiopian operating company in the coming months. Vodacom will also provide strategic operational support to the Ethiopian operating company. . “
The consortium won a business license and paid $ 850 million (93.6 billion shillings) to the Ethiopian government after defeating a competing $ 600 million (66.1 billion shillings) bid from a led group by MTN, based in South Africa.
The Safaricom consortium has also pledged to invest a total of $ 8 billion (881.6 billion shillings) over 10 years, including the cost of building telecommunications infrastructure.
The expensive investment is expected to see the consortium borrow from institutional investors, including development finance companies.
The parties see the agreement as a huge growth opportunity in a market of 110 million people, which previously relied exclusively on the state-owned company Ethio Telecom.
Ethiopia recently announced that Safaricom would be licensed to offer mobile money services after Ethio Telecom, which would increase the value of the license.
“The license opens a unique opportunity for the Consortium to develop world-class services in Africa’s second largest country in terms of population, providing a compelling long-term growth driver for Vodacom and Safaricom,” said Vodacom.
“In addition, the investment in Ethiopia strengthens the geographic diversification of Vodacom and Safaricom.”