Safaricom Converts Ksh.46 Billion Ethiopia Project Loan

 

By Kepha Muiruri For Citizen Digital

Telecoms operator Safaricom has converted a Ksh.46.4 billion ($400) short term loan facility to finance the expansion of operations in Ethiopia into a long-term loan.

According to the company’s Chief Finance Officer Dilip Pal, the facility has been converted to a long term, five-year, facility of $120 million (Ksh.31.9 billion) and a Ksh.31.1 billion seven-year facility.

The latter has a two-year moratorium on principal repayment through a syndication process.

The 46.4 billion facility covers a syndicated loan by local banks including Standard Chartered.

At the same time, Safaricom says it has resumed stalled discussions with the International Finance Corporation (IFC) on accessing additional financing for the Ethiopia venture.

So far, Safaricom says it has sunk about Ksh.62.7 billion ($540 million) in the project, which covers Equity investments including Ksh.31.3 billion ($270 million) for license payments.

So far, Safaricom consortium partners have contributed to Ksh.113 billion ($973 million) in the project with the bulk being equity investments.

Safaricom says it is relying on equity, vendor financing and short-term borrowing to meet the financing cost of the Ethiopia expansion.

“We are in discussions with local banks for medium to long-term facilities which are at advanced stages of negotiation,” stated Dilip Pal.

“The entity is well funded and the consortium is committed at ensuring the unit performs its planned activities. The objective is to minimize equity financing beyond what we have done so far.”

In the interim, the Ethiopian operation is expected to remain an Achilles heel to the financial performance of the company as it is only expected to break even in its fourth year of commercial operations.

Safaricom is expected to sink between Ksh.174.2 billion ($1.5 billion) and Ksh.232.2 billion ($2 billion) in the next five years.

The operator invested Ks.10.4 billion in the Ethiopia unit for the year ended March 31, 2022 with operating costs of Ksh.5.1 billion with the bulk representing staff costs and publicity spending.

The unit is projected to post a pre-tax loss of Ksh.33 billion over the next year while Capex is estimated at between Ksh.60 billion and Ksh.65 billion.

Safaricom Chairman Michael Joseph expects the expansion project to pay off dividends over the long-term.

“There are a lot of challenges when launching a Greenfield operation. This is the case across the world. Many ground breaking activities have not been done in Ethiopia before and as such, we are learning as we go along the way,” he said.

“There is huge potential in Ethiopia with a population of 112 people with just one incumbent operator. Once we launch commercial operations, I think we will start to see the benefits of the expansion.”

Safaricom is currently working to round-off an infrastructure sharing deal with Ethio Telecom.

Additionally, Safaricom is holding talks with the Ethiopian government on terms required to unveil mobile-money operations alongside the voice and data services.