Singtel puts US$250m into funding round to grow African telco

Singapore

SINGTEL will invest US$250 million in African telco Airtel Africa Ltd in a bid to tap the continent's burgeoning use of mobile money and mobile wallets.

Airtel Africa will be valued at US$4.4 billion after the funding round, the proceeds of which will be used to pare its existing debt of around US$5 billion and to grow its business ahead of an intended initial public offering (IPO), Singtel said.

The investment forms part of US$1.25 billion in global funding which Airtel has secured from international investors; these include Singapore investment firm Temasek Holdings, American private equity firm Warburg Pincus and Softbank Group International.

The African continent is projected to be the world's second-fastest growing economic zone and the fastest-growing mobile market, with unique mobile subscribers expected to rise to more than 500 million by 2020, from 420 million at the end of 2016, Singtel said in a statement on Wednesday.

Singtel paid cash for some 168.41 million shares in Airtel Africa - a subsidiary of its regional associate Bharti Airtel - which has operations in 14 African countries including Ghana, Kenya and Nigeria.

Singtel holds a 39.5 per cent effective stake in the parent company.

Singtel said that only a quarter of Africa's population has access to formal banking services. Mobile money has filled the gap and has become the engine for financial inclusion for both individuals and small businesses.

Airtel Africa is the second-largest telecom operator in the continent, with a customer base of 91 million, Singtel said. This puts the African telco among the top two operators in most of its 14 markets. It has been delivering "healthy revenue growth" in voice and data services. Its mobile wallet service Airtel Money has 11.8 million subscribers and has performed "strongly".

DBS analyst Sachin Mittal said post-investment, Singtel's stake could be around 5.7 per cent in Airtel Africa.

"If Airtel Africa were to report 25 to 30 billion rupees (S$450 to S$550 million) net profit annually, based on its stake, Singtel could reap S$25 to S$35 million (around 1 per cent of the group profit) net profit contribution from Airtel Africa - at around 14 to 16 times price-to-earnings ratio in our estimate," he said in response to BT's questions.

Based on Airtel Africa's estimated Ebitda (earnings before interest, tax, depreciation and amortisation) of US$1.1 billion and reported equity value of US$4.4 billion plus some US$5 billion of debt, the deal's value translates to about nine times EV (enterprise value)/Ebitda, Mr Mittal noted.

Chief executive of Singtel's International Group Arthur Lang said the telco's investment into Airtel Africa was reflective of confidence in Africa's long-term growth potential with its young and growing population.

For many of Airtel Africa's customers, the mobile phone is a "key enabler" for digital and financial inclusion, he noted.

"As Airtel continues to execute on its transformation strategy to become a leader in data and mobile money in Africa, we believe it is in a strong position to benefit from increasing smartphone penetration and mobile money adoption," he said.

Singtel ended higher on Wednesday, up 0.32 per cent or 1 Singapore cent to S$3.14.