The International Finance Corporation (IFC) is set to acquire a stake of less than 10 percent in Safaricom Ethiopia through a cash injection of $257 million (Sh35.3 billion). This investment will be divided between debt and equity, allowing Safaricom to retain its controlling stake of 55.7 percent in the Ethiopian unit.
Dilip Pal, Safaricom’s chief finance officer, stated that the IFC’s equity investment will be limited to $157 million (Sh21.6 billion), while the remaining $100 million (Sh13.7 billion) will be provided as debt. Pal further explained that the entry of the IFC will dilute the equity investments of all consortium members but emphasized that Safaricom will maintain the majority shareholding. On the debt side, the IFC’s involvement will help adjust Safaricom’s capital structure.
Safaricom’s other shareholders include Vodacom Group with a 6.19 percent stake, Sumitomo Corporation with 27.2 percent, and British International Investment (formerly CDC Group) with 10.9 percent.
Peter Ndegwa, the chief executive of Safaricom, expressed confidence in the IFC deal, assuring that the company has no intention of relinquishing control of its business in Ethiopia. While some shareholding will be ceded, Ndegwa affirmed that Safaricom will always maintain a controlling stake of over 10 percent, as agreed upon with all shareholders.
Safaricom, along with its partners, has already paid $850 million (Sh116.8 billion) in telecommunications license fees for its operations in Ethiopia, which began in October last year.
Previously, Safaricom was in discussions with the US International Development Finance Corporation (DFC) for a potential loan of up to $500 million (Sh69 billion) for its Ethiopian venture. However, the talks with the DFC ceased when the IFC presented a more promising opportunity.
Safaricom has planned a capital expenditure ranging from Sh40 billion to Sh45 billion for its Ethiopian operations in the current financial year, compared to the Sh55.6 billion spent in the previous financial year ending March 2023.
The company obtained a mobile money license in Ethiopia on May 11, after paying investment license fees of $150 million (Sh20.6 billion). This development is expected to boost the prominence of M-Pesa, Safaricom’s mobile money service, which has become an increasingly significant revenue source since its launch in 2007.
Since its inception in October last year until the end of March, Safaricom Ethiopia has gained approximately three million customers, established a network of over 114 distribution outlets, and expanded its coverage to 22 regions with around 1,300 network sites.
Despite generating Sh1.83 billion in revenue, the Ethiopia unit faced operating costs amounting to Sh19.95 billion, resulting in a post-tax loss of Sh12.2 billion.
So far, shareholders have injected $1.24 billion (Sh170 billion) into the Ethiopian unit, with Safaricom contributing $690 million (Sh94.8 billion). The estimated capital investment over the next five years is projected to reach $2 billion (Sh275 billion).
Safaricom’s net profit for the fiscal year ending March 2023 declined by 22.2 percent to Sh52.48 billion from the previous year’s figure of Sh67.49 billion. This decrease was primarily attributed to increased operating expenses in Ethiopia.
This decline marks the third consecutive year of falling profits since Safaricom’s peak net earnings of Sh73.66 billion in the fiscal year ending March 2020. It represents the telco’s lowest net profit since 2017, when earnings amounted to Sh48 billion.