Safaricom Ethiopia set to receive US$160m from IFC to boost its capital expenditure

ETHIOPIA – The World Bank’s private investment arm, the International Finance Corporation (IFC), has announced plans to inject up to US$160 million in equity into telecoms firm Safaricom Ethiopia to help fund its capital expenditure.

Safaricom Ethiopia, partly owned by Kenyan telecoms operator Safaricom, started phased operations in August in the country’s Dire Dawa city and Haramaya this month.

IFC is also expected to provide debt financing to the venture at a later date but did not specify the amount saying the package is still under discussion.

“The proposed IFC transaction comprises an up to US$160 million equity investment in the Company to help fund CAPEX requirement. A separate debt package is also being discussed,” IFC said in a statement on its website.

IFC’s investment will support STE’s countrywide mobile network roll-out and help position the company to comply with the terms of its license, which outlines the requirement for a specified population and geographic coverage targets and reasonable tariffs, universal accessibility and tele density target, amongst others.”

STE expects to switch on its network in 25 cities in Ethiopia by April next year, the company said in a statement.

This is not the first IFC involvement in the venture with the institution having been paid a fee of US$4 million (KSh481 million) for services rendered with the entry into the new market.

Safaricom did not disclose the services received from IFC but they could be mobilisation of loans or advisory on bidding for the licence, which was issued last year.

Expansion into Ethiopia’s telecommunications market is capital intensive, where the financial investment is expected to top the US$1 billion (KSh120 billion) mark.

These funds are set to be raised mainly through debt. Safaricom had earlier said it was ready to take more debt in its role as the majority shareholder of the consortium.

The telco sees Ethiopia, a market with more than 100 million people and a relatively lower uptake of mobile and broadband services, as presenting significant growth opportunities.

The new operation 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 may yet come from the American sovereign wealth fund US International Development Finance Corporation, which in late 2020 signed an agreement to lend up to US$500 million (KSh60 billion) to the consortium towards the Ethiopia business.

The DFC loan would offer long-term financing on relatively favourable terms, given that its loans typically mature between five and 25 years, with repayment schedules set on a quarterly or semi-annual basis.

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