Good afternoon, everyone, and good morning to those joining from the US. My name is JP Davids. I look after investor relations for the Vodacom Group. Thank you for joining this call to discuss the acquisition of a strategic stake in Safaricom. As a reminder, we have put out an announcement this morning on the Johannesburg Stock Exchange alongside Safaricom. We've also published a presentation to our website, which is available at www.vodacom.com.
If you need that presentation, you can reach out to myself or the investor relations team. Pleased to say we're joined on today's call by both Vodacom and Safaricom management. On the Vodacom side, Shameel and Raisibe, who you know well. We also have Sean Bennett joining us. Sean is our Chief Officer of M&A and Business Development. From the Safaricom team, thanks to Peter, Dilip, and Caroline for joining us. With that, I'll hand over to Shameel for some opening remarks, and then we will move on to Q&A. Thank you.
Hi, thank you. Thank you, everybody, for joining us. I think, you know, a very big day for us because we see this as a transformational investment for a number of reasons, given the context of Safaricom, the size, the trading, and so on, and of course, the big fintech play, and the fact that as Vodacom, we've invested for the last 25 years. B asically, what we've announced today is that we're intending acquiring 15% shareholding from the Government of Kenya and a 5% shareholding from Vodafone so that will give us 20%. That 20% will amount to $2.1 billion, is the purchase price, or equivalent to 34 KES per Safaricom share.
This will increase our shareholding to 55% of Safaricom and give us the ability to consolidate. T his will, of course, be very complementary to our Vision 2030 strategy. Now, the split in terms of how much we're paying is $0.5 billion US dollars or $500 million for the Vodafone US dollars, or R9 billion for the shares in the Vodafone's 5%, or the way it's held is a 12.5% in Vodafone Kenya. W e'll buy the 12.5% that we don't own and then we'll own 100% of Vodafone Kenya going forward.
The second part of the transaction is buying the 15% from government for an equivalent of $1.6 billion or 27 billion Rand. We've also bought some of the future dividends from the remaining holding, which is equivalent to about R7.4 billion of dividends for a purchase price of R5.3 billion. Now, this will give us the ability to, as I said, to consolidate on Safaricom. It's an established player.
Effectively, what the market shares or, sorry, what the ownership structure would look like post the transaction is 55% us, 20% government, and 25% on the listed entity side. The EBITDA margin in Kenya is running at 57.3%. For the group, because of the losses, it is now at 49.5 so it's a very lucrative business. It's been going double digits, so very good. Also has 38 million in base of customers in Kenya and that's already contributes 44% of revenues in Kenya.
This will give us, from a Vodacom perspective, the benefits are that it diversifies our portfolio more. If we look at it post-consolidation, we'll end up with 35% South Africa, 31% Safaricom, and then 21% Egypt and about 13% from the international. I t gives us a very nice diversification. Also exposes you to three big markets, which are Kenya, Egypt, and South Africa.
Of course, it's one of the prized assets in telco on the continent, but also globally. Market leader with 65% market share in Kenya. It's got 57% margin. It's got, and of course, the revenue market share is even higher. It's got 90% of the fintech market. It's a leader in fiber. Full integrated portfolio of assets. It's got a lot of fiber to the sites. It owns most of its towers or almost all of its towers. I think a very strong portfolio, very strong positioning in the market. And also government staying on as a shareholder, we see as a positive so that the public-private listed investment that we've created, which I think is a reference point for how this can be done worldwide, has actually turned out to be very positive.
Of course, both government, we've recommitted to government in terms of our undertakings, and they've recommitted to us in terms of our partnership going forward and how we can create a mutually beneficial business and also help with the digitization of the country. Then maybe just to add, there's a fairness opinion that's been done. We're just waiting. It's a CP to the deal. It's been done by an independent expert, Deloitte, and we're just waiting for the final approval from the JSE. I'll pause there for questions.
Super. Thanks, Shameel. We have a few coming through already. Just as a reminder, there is a facility on the webcast to post questions. Perhaps we'll kick off with one from Jonathan Kennedy-Good and then another one for Raisibe, which is the same question from Myron and Mike. Just starting with Jonathan's question, is there any lock-up period for the remaining government stake of 20%? Also, do you have a right of first refusal? That's the first question. Perhaps that's one for you, Shameel, a nd then the second one is just around the financing. Is the R35 billion of new debt incurred by Vodacom interest or, sorry, is it tax deductible? Is the interest on it tax deductible? Thanks, guys.
Okay. T he 20%, we don't have an offer on, one. T wo, the government doesn't intend selling it. I think selling the 15% was quite painful for them because they really see value in the asset, and they really see it as a strategic investor. They committed publicly, even today, in the press release, in the press conferences and so on, that they want to hold on to the 20% for the foreseeable future because they see this model of bringing an investor, having the government hold as a strategic stake in what is, which is the biggest company in Kenya, is a very important step forward.
In terms of tax deductibility of the interest, no. We have taken 10 facilities, and we wanted to make sure that first step, we close the transaction and then start looking at opportunities of refinancing. This will be similar to what we have done previously when we did the Egypt transaction, where we did a preference share structure subsequent to that first leg. However, the terms of the funding are relatively positive or attractive such that it doesn't create a lot of pressure for us to go and refinance the facilities. We were funded by Vodafone Luxembourg, which basically runs a treasury environment or a mini bank. W e are able to either refinance the whole package or parts of the package, and we have left that level of flexibility.
The component that is in Kenya, which is the buying of the dividend stream, that is also funded in shilling, and that is obviously going to be repaid from the dividend stream that comes through. Yeah, so that is the outcome. Of course, preference shares will still be one of the preferred methods. We were also quite conscious that we were raising funding to close out on the fiber deal on Maziv transaction. For that reason, we wanted to separate the two. Yeah, we will explore opportunities. As it turns out, I'm getting a lot of emails from banks saying, "When you refinance, we are available." We will do that in due course.
Thank you. Follow-on questions for the funding of the deal. The first one comes from Dumasani at SPW. I would start off by saying and quoting him. He says, "Looks like a master stroke of a deal. Congrats, guys." H is question on the funding is, is the $2.1 billion all a US dollar facility, or have you carved out KES or perhaps Ethiopian Birr to align with Safaricom's cash flows? If so, what does the mix look like?
Just to confirm whether in that answer, you're talking about the Vodafone facility or the government dividend facility or the government upfront payment for the dividends. I think just related to that Wessel, that Oystercatcher asking us just to talk through some of the high-level financing parameters of the deal, so things like interest, costs, currencies, et cetera. You can probably tackle both of those with the same answer. Thank you.
Okay, thanks, JP. T he dividend facility, which is an equivalent of $300 million, that is in KES in local currency and that is the facility that we got from one of the local banks and with a guarantee from Vodacom Group. T hat will be settled as such in Kenyan shilling. Then the component that acquires the 15% from the government and the 5% from Vodafone are both in ZAR funded by Vodafone Luxembourg, delivered in Rand to us and settled in hard currency. The government will receive dollars and Vodafone will receive Euro, but the funding that we receive is in ZAR. And that is in a very similar pattern as the funding that we normally get from Luxembourg, which is arriving at us, Rand and everything already with the currency swaps.
It is still fairly attractive in terms of pricing when compared to what we get from the other financial institutions. We always shop around. We never just take the first available capacity. As I said, higher concentration with Luxembourg, in part because we're already raising some money in the market. Yes, I mean, we did negotiate hard. It is at arm's length, and it is priced at an average of around 8% all-in rate. We're quite comfortable with that. We will continue to explore opportunities, as I said earlier on. The opportunity that could probably match that practically will be the preference shares.
Great. We have a couple of questions around the dividend aspect of the deal. The first one's from Jonty at Allan Gray, and then Robert at Deutsche Bank is also asking around that. Perhaps there's an element of overlap to the two questions, but I'll just ask them separately. The first one from Jonty, how is the value of the dividend stream calculated? Just to confirm, it's the fixed R7.4 billion, or is it rather related to all future dividends you're contemplating here? T hen Robert's question is similar. Is the R7.4 billion on the forward dividends based on a definitive or fixed timeline, or is it just till the 20% of the remaining government stake reaches that R7.4 billion? Perhaps just a little bit more color around how that particular transaction will work.
This is Sean. W hat we did is we took a percentage of the sort of expected dividends over a three-year period, and then we discounted it as an IRR of 16.5%. T he way it works is if those dividends are more than the percentage, then it will pay down the facility quicker, in which case the IRR will go up. However, we're capped at 18% IRR and we actually fully expect it to be paid down sort of just over two years, in just over two years.
Thank you, Sean. Perhaps switching to a couple of 36ONE's questions from 36ONE. H e's got one here on the effective tax rate for the group, given that the interest is not going to be tax deductible. I think, 36ONE, and that one's probably a little bit too specific for today's call. We're not giving pro forma numbers on this call. With these types of things, we'll try to help a little bit more over time. Switching to questions from HSBC, a couple of questions. Firstly, what is this going to do to leverage for the group after this and the Maziv deal contemplated together? Just a broader question around the path of the dividends or the outlook for the dividends. S pecifically, is there any risk to the dividend here?
Okay. T he question being around leverage. We are expecting to be a touch below 1.5 times, which is our internal metric. Th is is after this transaction and after the Maziv transaction, which we have paid already the $8 billion on the 1st of December. O ur plan will be to deliver as opportunities arise and to continue and refinance as we go along, but yeah, so the net debt to EBITDA metrics are still at a healthy 1.5 times.
Any comments you want to give on the dividend, Raisibe?
We still maintain the dividend policy at Vodacom Group at 75%. Obviously, if there's any change or anything like that, we will consider. A t this point, we're quite comfortable that this is the level where we are. The dividend policy of Safaricom is 80%, and that is also no change at this stage. If there are any changes or anything, we will come back to the market, but no plan to do that at this stage.
Okay. Maybe switching gear a little bit into some of the other questions that are coming through related to things outside of the structuring. Robert's other question was just around probably more one for you, Shameel, and perhaps the Safaricom team, b ut is there anything we plan on doing with Safaricom in terms of its strategy with regard to financial services or payments?
How are we going to leverage Safaricom's expertise into the region and to the rest of our portfolios? That's question one. A separate question from Nadim at Standard Bank is just asking about what the board structure will look like post this deal, if we can provide him a little bit of help there. M ore broadly, what strategic value do we see of having greater control of Safaricom? H ow would this create shareholder value for, I guess, Vodacom and Safaricom?
Yeah, so a couple of things. F irstly, I think so let's start with the last question. I think from a strategic perspective, effectively, from a Vodacom perspective, it helps us to diversify revenues through the consolidation and have exposure to what's a bit more exposure towards the connecting asset. That's even combined, what the Ethiopia ops is running at 49.5%, right, EBITDA margin.
Now, Kenya is running at 57%. O nce you start, you get to EBITDA break even, which is projected to be next year for Ethiopia, you start to see that number getting a lot better. T hat's the one side, a nd then, of course, it's got strong earnings, strong growth, strong market positioning, strong assets, and so on, both in fiber, fintech, and as well. Where we see synergies, of course, is definitely procurement synergies. We see synergies in working even closer together.
Remember, it is part of the group today, s o it's not like we're buying an asset that we don't know. We've been part of creating the success for the last 25 years as Vodacom and essentially, so we have deep insight into the business in lots of contexts. I think the further opportunities will come cross-sharing. F or example, one of the things that will happen immediately is the chief commercial officer will join the board of Maziv from Safaricom onto Maziv, a nd the reason for that is that we want to cross-pollinate the fiber ideas and opportunities.
We build here cheaper, but of course, we've got deeper experience having a bigger base in S.A. T hese are the type of things that we would leverage a nd so that working together, all the way from governance through to tighter working together in commercial will be there. and of course, we plan to continue to leverage the financial services part. Remember, we built and based up in Kenya, so we'll still look, leverage the capabilities and skills of Safaricom. Raisibe was here last week looking at, for instance, the whole governance part in terms of M-Pesa. and we saw some good best practices that can be replicated in other markets given the more mature basis of how long fintech and financial services have been around in Safaricom.
There's a lot of cross-learnings, cross-ideas. We're working on products together, everything from loyalty products to big data. We share people. so all of this will just become a lot tighter, and we think that will lead to even more success as we go forward. so it will be beneficial. Remember, this is a shareholder transaction, but I think Safaricom will gain from it.
I think also, just to put a perspective, we're more comfortable, or we are comfortable with the regulatory framework and so on, with the new licensing that will be published for public comment and so on in the environment. We're quite comfortable that we've got a good, sustainable business going forward. In terms of the board structure, of course, the Vodafone, we have one Vodafone, three Vodacom, it will all become Vodacom. You'll have five Vodacom directors, and then you'll have two government, four independents, and one exec, which is the CEO. It's a slight change from today because basically, we'll take over one from government.
Thank you, Shameel. A question from Jonathan from Prescient just around the shareholder structure for Ethiopia and whether we see any changes there as a result of this deal. P erhaps also just following up on the regulatory outstanding approvals, perhaps we can just give a sense of what are some of the big ones from the conditions precedent that we're required to get this deal over the line.
Sure. Let me comment on all the approvals. On the Safaricom, sorry, on Ethiopia's shareholding, Safaricom owns about 53. We own just over five so that structure won't really change except for if any of the partners want to, want to change hands or so on. Y eah, it doesn't affect the structure per se, but we'll always make sure we've got the right partners to make sure that we fund the business and have the momentum going forward.
On the regulatory approvals, we've got. There's quite a lot. There's the competition ones in relation to COMESA and the East African Competition, I think it's called. We've got the Capital Markets Authority have to sign off on the fact that we don't make an offer to minorities. We've got the Central Bank will need to approve from a dividend perspective, the Communications Authority and then we've got the Reserve Bank in South Africa. T here's a reasonable amount. We're still waiting for the JSE approval in relation to the fairness opinion on the related party aspects of the transaction, although the work has been finished and they're just reviewing the report, and that's expected in the next 24 hours.
Great. Reverting back to some questions on the financing side, Adelaide from Absa just asking around what sort of tenure the Luxembourg facilities have. Jonathan, that 's interested in the broader repayment terms of those facilities, i.e., are they amortizing or bullet payments? Maybe take those two, and then there's a follow-up from Dumasani, but I'll let you answer first. Thank you, Raisibe.
Okay. Thank you. In terms of tenure, we have a credit facility to allow that refinancing plan, so there's a portion, small portion, that is a one-year bridge facility. T hat is based on our scanning of the market where we know that we can be able to refinance that fairly quickly, and then the balance is spread between three, five, and seven years, so that is with the capacity to refinance without kind of punitive charges. O bviously, we have to give a notice period, so if we get to that point. That is that part, and then, sorry, what was the second one again, JP?
Yeah, that was just around the. I think you've nailed both, so that's all good b ut just moving on to Dumasani's question, which is also related to this. I think he just wanted to clarify, in a scenario where we do refinance these facilities, would it be in local currency, i.e., Kenyan shillings? Dumasani's main point here is he's just worried about to what extent we would be taking on foreign exchange risk going forward. He's interested in reports around our approach to managing foreign exchange risk.
When we refinance, it's still in ZAR. Our basic approach in terms of debt is in ZAR. The only exceptions are in markets like D.R.C., where it is a dollar economy. Obviously, that is serviced in the local environment. Any other facilities that we have in any other market will be in local currency. Our facilities, our debt is concentrated in S.A., and it is all in ZAR. Therefore, if we refinance, when we refinance, it's also still going to be in ZAR.
Just to be clear, the one that is in cash is the dividend loan, which is going to benefit from the dividend inflow that basically becomes a liquidity match with the loan that we have taken, and that should be dispensed off very quickly. There's no facility in Birr because nothing in this transaction actually happens in Ethiopia. I t is between S.A. and Kenya, with the smallest component being in Kenyan shilling. Otherwise, the balance of our facilities are in Rand.
Okay. Shameel, I think you might like this one. It's from Mariette Blade. He's saying, "Safaricom's up 80% over the last 12 months. Why didn't you buy Vodafone's 80% last year?" Separate question from Pradyumna from HSBC. Just wanted an update on if this transaction at all impacted that discussion around the separation of M-Pesa. You've made some comments in the past, Shameel. Just wanted to see if those had changed. He just wanted to check if those have changed in any way.
Yeah. Maybe let me start there. The minister came out today, was asked the same question, and he clearly stated that there's no splitting of M-Pesa. I think that deals with that. In terms of the price, and just also to be clear, we've made commitments to government, and they made commitments to us in terms of this transaction. T he other thing, just on the Vodafone, why didn't we buy it at a lower price?
Because honestly, they weren't that stupid to sell it to us at the low. Of course, we tried, but they weren't biting. I think, yeah, what we managed to do is to get a good price and I think also, they've given us an attractive funding package. What we've also, the consolidation is, sorry, being able to take 100% helps us a lot from a tax perspective because we save on capital gains. Because basically, when we get the dividend, we use that to pay off the loan.
Withholding tax.
Capital gains withholding tax, sorry.
Thank you. A question perhaps for Sean. Sean, I'd ask that you answer this as high level as humanly possible. Just asking around a rough sense of the transaction costs associated with the deal. A follow-up from Jonathan Kennedy-Good at Prescient. I think we've dealt with most of it, but let's just see, Raisibe, which is if we are intending to refinance the Vodafone term loan with bank funding, how much would we consider refinancing?
Okay.
The transaction costs, they're relatively low for a transaction of this size. I n sort of a range of ZAR 200 million to ZAR 300 million. It depends on. We're not expecting stamp duty. In fact, it depends on whether you add that in just in case. ZAR 200 million to ZAR 300 million is sort of a reasonable estimate.
So.
That's a lot. That is stamp duty and brokerage. Yeah, there's various, and it's a block trade in Kenya, so there are various sort of fees that have to be paid, regulatory fees, etc. That's a large portion of that.
Yeah. I n terms of the refinance, the reason why we split it up in the one-year bracket, three years, five years, and seven years is also to allow us that opportunity of when to refinance, how much to refinance at a point in time, and also blend it with our maturity profile, our other debt, our other existing debt. T he order of what to refinance is driven by a component of what is coming up for renewal, as well as what is more expensive. T his being debt that is non-tax deductible, the preference will be to refinance it with the preference shares to the extent that that capacity is still available.
You'll recall that we did a preference share recently for our Maziv transaction, but in our packaging order, the one-year facility is the one that we'll refinance first. It will depend on whether we are able to get 10 facilities, which are well priced, to match the pricing that we have from Luxembourg, or if we are able to put that into the preference share structure.
Super. Thank you, Raisibe. Just as a reminder, we have put a presentation onto the website, the Vodacom website. If you do need access to that and you can't find it, reach out to the investor relations team. Shameel, at this point, we do not have any further questions. Sorry, one's just come in. Then let's see if there are any more coming after that. This is from Rohit at Citi. Quick follow-up on the M-Pesa separation. Is there a commitment from the government and the regulator that this won't be forced on M-Pesa in the future o r is it, who's making this commitment?
I think there's a clear statement from government that there is no intention to split it.
Okay, and with that, the questions are done.
We can just push for a split as well, yeah?
With that, the questions are done. Happy to hand over to you to finish off that question and wrap up the call. Thank you.
Yeah. B asically, the big part is that the government has come out clearly saying there's no engagement to split it. I think that's the big part in terms of it and so we're quite comfortable with that. T he noise levels of splitting have been around for as long as I've been involved. That's coming on eight or nine years now, and it hasn't happened. I think we have a very good understanding with government, and also government is a shareholder, and also that the value that M-Pesa brings both to the economy, but there isn't a basis for splitting it. R emember, even if one day came to pass, we would still own. You don't split and take the company away from us.
We own both sides of the company, which actually we still own our 55% stake in both, but we're not concerned that that's us, and thank you for joining us. If you have any other questions, please reach out to JP. I'd be happy to have further discussions on it.
Question popping. Have you still got a second to answer it?
Sure.
Sure. We've got a question from M&G. Can you provide any clarity on the commitments made to the government and the commitments made by the government to you at this point in time?
The government's kind of given some of it out already in the press release, and we haven't released any of the anything. It's still, it's more around how we work together, essentially building on the commitments that we had before, just recommitting to each other how we run the business, yeah? The standard stuff, like we won't change the brand. That was a commitment we've had for the last 10 years or even longer.
Things like there won't be any retrenchments as a result of the transaction for the next two years. Those type of three years, sorry. T hey won't as a result of the transaction, except for in the normal course of business. Those type of commitments that we keep with the Foundation's activities and won't stop the Foundation as it relates to how it operates currently, yeah? Which, by the way, is licensed. The interest money goes into a foundation, and then that goes into social development so that will stay.
Super. Thank you, Shameel, and thank you to everyone for dialing in. We will end the call there.