Safaricom on The Mend
Safaricom Ethiopia's phased commercial launch to start from August 25
๐ Welcome to The Mwango Weekly by Mwango Capital, a newsletter that brings you a succinct summary of key capital markets and business news items from East Africa.This week, we cover Safaricom Ethiopia's operations, the National Tax Policy Draft, and the debt markets.Our newsletter this week is brought to you by DTB Kenya.
First off, enjoy our weekly business news in memes brought to you by Mwango Capital:
Safaricom on The Mend
Ethiopia Operations: The phased commercial launch will start from August 25 in Dire Dawa before expanding countrywide to 24 cities by April 2023. The aim is to cover a quarter of the population by end of the financial year. With most infrastructure and management operations set up, the firm is currently doing tests to ensure the provision of quality services prior to launch.
โSafaricom Ethiopia is looking forward to switching on our network and services, starting with Dire Dawa from August 2022 and 24 other cities in phases across the country in the coming months. Currently, we are in a testing period to ensure that when we switch on, we will deliver a quality experience for Ethiopians.โ
Safaricom Ethiopia Chief External Affairs and Regulatory Officer, Matthew Harrison-Harvey
Dire Dawa is located in eastern Ethiopia near Djibouti and can easily connect to the international cables there:ย
โWe are starting in Dire Dawa because thatโs the closest place to being ready, and then we will be opening in other cities including Addis Ababa in the next few months.โ
Safaricom Ethiopia Chief External Affairs and Regulatory Officer, Matthew Harrison-Harvey
We also learnt that Vodacom has some ambitious plans for Safaricom Ethiopia. It is expected to break even in 4 years following its commercial launch in 2022 and attain EBITDA margins of 40% in 10 years. Safaricom Kenya has EBITDA margins of ~50% while Ethio Telecom had average EBITDA margins of ~66% in the period 2018-2020. Notably, the Ethio Telecom margins have been declining over time.
Global Pay Visa Undercuts Banks: Safaricomโs recently launched product, M-Pesa Global Pay Visa, is offering foreign exchange rates that are superior compared to banks. With the differential at KES 7 compared to the best quote from banks, the product looks set to increase the competition with traditional banking services.ย
Recouping Losses: Safaricom has been in a slump for the most part of the year and closed 33.9% down in H1 2022. However, in last weekโs trading action, East Africaโs largest company by market cap pared back losses and closed 12.6% higher week-on-week at KES 28.20.
BNPL Launch: Last week, Safaricom launched a 0%-interest credit service, Faraja, operating under the Buy Now and Pay Later model. Borrowing limits are between KES 20 - KES 100K. By offering a direct service tied to shopping, Faraja is set to increase competition with digital credit providers.
AGM: At the Annual General Meeting slated for July 29, a final dividend of KES 0.75 per share, totaling KES 30.04B, will be proposed to shareholders for approval. The total dividend payout for the 2021 financial year is set to be KES 55.69B.
National Tax Policy Draft
The policy document is an effort by the National Treasury to provide a framework for the formulation of tax legislation in the country. Below are some highlights from the draft document.
Bottlenecks: The National Treasury acknowledges, among others, the complexity of taxing the emerging digital economy and hard-to-tax sectors including informal and agriculture sectors as key challenges of Kenyaโs Tax System.
Tax Administration: The document envisions a degree of autonomy with regard to dispute resolution by delinking the process from the taxman. Further, with the scope of litigation involving taxes, the Treasury has also outlined the establishment of a specialized tax court.ย
Tax Law Review: In order to address the unpredictability of tax rates due to yearly changes vide the Finance Bill, the Treasury proposes a review of tax laws be done once every 5 years.
Presumptive Tax: The document floats the implementation of a tax on fixed sales as a solution to difficult-to-tax agriculture and informal sectors.
Value Added Tax: The policy stipulates a single general 16% VAT and a preferential rate not below 12%. It also limits zero-rating to exported goods with some exemptions on international air travel.
You can access the full document here.
Debt Markets
Lackluster IFB: In the tap sale for the IFB1/2022/18 infrastructure bond dated 11 July 2022, investors placed bids worth KES 6.418B out of a KES 20B target. The CBK accepted KES 6.416B bids at an average interest rate of 13.742%.
Table comparing previous tap sales
Borrowing Headache: The National Treasury faces a headache raising KES 240B from external lenders in 2022/23 for budget deficit financing after sovereign debt yields rose to new highs of nearly 17%. The rising yields highlight the high cost of debt the government faces in international debt markets.
โWe are still engaging banks, we just floated and are yet to get feedback from them, so no timelines.โ
National Treasury CS, Ukur Yatani
T-Bills: In the short-term debt markets, the average interest rates for the 91-day, 182-day, and 364-day instruments came in at 8.167%, 9.253%, and 9.980% respectively. The yields are higher by an average of 4 basis points compared to the last auction.
Mergers, Deals, and Acquisitions
Unilever Exits Limuru Tea: Unilever has disposed of its 52% shareholding in Limuru Tea to PE firm CVC Capital Partners. The transaction has since morphed into a proposed takeover of the remaining minority shareholders in line with CMA regulations. Limuru Tea last week closed at KES 320 with a market cap of KES 768M.
Limuru Tea Litigation: Last month, billionaire businessman Joe Wanjui went to court to stop Unilever from exiting its 52% stake in Limuru Tea to the PE firm. Mr. Wanjui who owns 25.48% of Limuru Tea has accused Unilever of rejecting an offer by existing minority shareholders to buy the 52% stake in favor of CVC Capital Partners.
UMG-Mdundo Licensing Deal: The worldโs largest record label, Universal Music Group, has reached an agreement with Africa-focused streaming service, Mdundo, to avail its music catalog to around 20M Mdundo. Users on the streaming service have grown three-fold in the last 2 years to an estimated 19-20M.
Banking Roundup
Centum REโs Profit Warning: Centumโs real estate subsidiary Centum RE has issued a profit warning on its full-year 2022 net earnings. The firm expects the earnings to be at least 25% lower than the previous year on lower revaluation gains on its investment property. According to the Kenya Bankers Association Housing Price Index (KBA-HPI), house prices contracted by 3.99% in Q4 2021.
KMRC Disburses KES 1.8B to KCB: Kenyaโs largest home loans financier by market share KCB (KES 76.3B), has received a KES 1.8B disbursement from mortgage refinancier, KMRC, for refinancing home loans under a state-backed plan. KCB sought KES 2.1B last year, translating to an 85.7% funding rate. According to the Acting MD of Shelter Afrique, land prices in Nairobi are the most expensive component in the development of affordable housing, taking up to 60% of the total cost of a housing unit.ย
NIFC Takes Off: The Nairobi International Financial Centre was launched last week with the goal of attracting $2B in investments. Nairobi joins Casablanca, Cape Town, Port Louis, and Johannesburg as International Finance Centres across the continent.
Prudential Eyes Market: While joining the Nairobi International Finance Centre last week, the multinational insurer highlighted the ability of medical underwriting in firming up regional growth as among the drivers behind its plans to enter Kenyaโs medical underwriting market.
What Else Happened This Week
KRAโs KES 2T Record: In the previous financial year, the taxman collected KES 2.031T in revenue, an increase of 21.7% Year-over-Year. The amount was KES 148.9B above the yearโs tax targets and the highest revenue collected in the countryโs history.
Flutterwave Funds Frozen: The High Court in Nairobi has frozen over KES 6B held in 52 bank accounts owned by Flutterwave, Nigerian and Kenyan businesses. The Assets Recovery Agency had petitioned the court to freeze the funds on suspicions of money laundering. Flutterwave has come out to deny reports of financial improprieties on its part.
Kenya PMI: The Purchasing Managersโ Index for June 2022 fell to 46.8 from 48.2 in May on weakening demand and rising inflationary pressures. Uncertainty around the upcoming General Elections and cash flow shortages have also contributed to a decline in new orders.
CARโs Cryptocurrency: The President of CAR, Africaโs first Bitcoin adopter, Faustin-Archange Touadera has said that the country of 5M people plans to launch its cryptocurrency in Q3 2022. The crypto has been dubbed โSango Coinโ in what is a broader plan to develop the financial industry.
DRC - Rwanda to De-escalate: In a meeting hosted by Angola President Joao Lourenco on Wednesday last week to look for a peace solution in Eastern DRC, Rwanda and DRC have agreed on a roadmap to de-escalate hostilities. For months now, the two countries have been at odds over DRCโs allegations of Rwanda's support for M7.
Interest Rates Watch
๐บ๐ฌ Uganda:ย In an extraordinary meeting,ย the Monetary Policy Committee of the Bank of Uganda raised the key rate by 100 basis points to 8.5%. Uganda's annual inflation stands at 6.8%.
๐ธ๐ฑ Sierra Leone: Monetary authorities in Freetown hiked the key benchmark rate by 100 basis points to 16% to combat rising inflation that has reached 22.44%.
๐ฟ๐ผ Zimbabwe: The Reserve Bank of Zimbabwe is set to introduce gold coins to the public from July 25 as a store of value in a bid to stabilize the Zimbabwe dollar and offer an alternative to the highly-demanded US Dollar.