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Vodacom rides East, ups stake in Vodacom Tanzania

Vodacom Tanzania shareholders approve sale of 26% stake owned by Mirambo Holdings to SA’s Vodacom Group.

Vodacom Tanzania has approved the sale of a 26% stake previously owned by Mirambo Holdings to JSE-listed Vodacom Group. Mirambo Holdings, which is the investment arm of Tanzanian tycoon Rostam Aziz, owns 588 million shares in Vodacom Tanzania and the proposed deal is subject to approval from Tanzania’s fair Competition Commission and the local capital markets and securities authority.

The approval means that Vodacom SA will increase its stake in Vodacom Tanzania from 61.6% to 75% and thus increasing its control in the country’s leading telco. “This is definitely a positive move for Vodacom. Initially, Vodacom was disallowed from competing with Vodafone in Africa for many years and this meant [that] it could not buy some early stage opportunities in the Telco space,” says Zwelakhe Mnguni, Chief Investment Officer of Benguela Global Fund Managers.

“The increased shareholding in Tanzania will enable the company to replicate strategies that have worked in South Africa and Kenya in particular.”

This ultimately means that Vodacom Group South Africa now owns the lion’s share of Vodacom’s exposure within Tanzania. Jordan Weir, a trader at Citadel, comments: “The remaining 25% will be controlled by other smaller companies and individual investors. This will now enable Vodacom Group to take more responsibility on board, while having the power to drive the future growth of the company within Tanzania to new highs which may indeed reward the underlying shareholder through both dividend and capital growth along the way.”

Vodacom SA’s consolidation follows a tough three years vitiated by an amendment to the finance bill, which in effect required telco companies to float 25% of their shares on the Dar es Salaam stock exchange. As a result, the initial public offer (IPO) in August 2017 was oversubscribed but only after the foreign investors were allotted a 40% buy-in window.

In a surprising turn of events, Vodacom SA used the listing prospectus to table a motion of increasing its stake in Vodacom Tanzania.

“In the prospectus issued in respect of the listing of Vodacom Tanzania on the Dar es Salaam Stock Exchange it had been stated that Vodacom Group Limited was desirous of increasing its shareholding in Vodacom Tanzania PLC and was in discussions with Mirambo in this regard,” a Vodacom SA spokesperson told Moneyweb. “The resolution passed at the extraordinary general meeting is a precondition for the regulatory approvals to be obtained for Vodacom Group Limited to make a public offer to all Vodacom Tanzania shareholders, including Mirambo to acquire shares on specific terms and conditions.”

The company went through a $213 million IPO last August, Tanzania’s largest ever, which attracted more than 40 000 local investors, most of whom were first-time participants in the country’s stock market. Foreigners, initially banned from participating, bought 40% of the shares. 

Tanzania presents immense growth potential for Vodacom with the latest interim results showing customer growth and data customers up 8.8% and 14% respectively.  

Despite registering a 6% rise in full-year service revenue, Vodacom Tanzania endured a tough year following a January 2018 decision by the Tanzania communications regulatory authority to cut the mobile termination rate, which is principally the fee operators pay for calls made across networks.

Consequently, Vodacom Tanzania’s voice revenue plunged 6% following poorer mobile incoming revenue, which was down 14.2%.

Despite the headwinds, Vodacom Group’s interim results released this week optimistically alluded to the matter — priming a legal option. “In Tanzania, the group has filed an appeal against the regulator’s new five-year glide path with the Fair Competition Commission on the grounds that new mobile termination rates were modelled using data that was not representative of actual costs incurred by operators and the glide path sets mobile termination rates below cost,” read the company’s statement. The appeal alludes to the regulator’s decision to impose a 42.1% reduction in the mobile termination rate.

Meanwhile, the group has continued to invest heavily in infrastructure with Vodacom Tanzania’s acquisition of additional 4G spectrum at 2 x 10 MHz for a total of US$10 million only eclipsed by the recent launch of Africa’s first commercial 5G network in Lesotho. However, Mnguni argues the 5G network in Lesotho is a beta project for a larger rollout across the markets Vodacom services. “This is an on-going process and Vodacom will keep investing. For Lesotho, This is a small scale trail so they can understand what could go right or wrong in the 5G space before they roll it out in the broader markets.”

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They will live to regret that. Tanzania is a very difficult country to do business in and is very unfriendly towards foreign investors. The fact is, they don’t want any Westerners there. In 2017 the Tanzanian tax authorities accused UK based Acacia Mining of under-reporting its revenues and slapped the company with a fine of US$190 billion. That is 3,6 times the country’s GDP of US$52 billion!

Fully agree with above
This is where the capital allocation process ignores significant political and regulatory risk.
Better returning cash to shareholders than taking such risk in my view

35% in Kenya……Yuuup!
26% in Tanzania…x2 Yuuup!

Can news get any better? Well pop that champagne bottle already, if you haven’t already.

Now how about Ethiopia…? You can barely receive a call on a phone in your other hand? And there are over a 100 million people.

You hear that sound….oh, you missed it? Its the sound of a fattening wallet from dividends.

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