US sanction waiver saves Safaricom Ethiopia deal

US sanction waiver saves Safaricom Ethiopia deal

Safaricom chief executive Peter Ndegwa during the company’s launch of 5G. FILE PHOTO | NMG A consortium led by Safaricom has received a boost after their US financier was granted a special approval to fund the telcos’ entry into Ethiopia amid America’s economic sanctions against Addis Ababa.

The Ethiopia expansion had been complicated by the US International Development Finance Corporation (DFC) pausing of investments in the country despite agreeing to offer the consortium a $500 million loan (Sh53.9 billion).

Safaricom has disclosed that the US State development financier was granted approval to make select investments in Ethiopia, including funding the group that includes UK’s Vodafone and South Africa’s Vodacom Group Ltd.

The Sh53.9 billion financing had been thrown into doubt over US economic sanctions against Ethiopia to end violence in the northern Tigray region, a conflict which has killed thousands of people and displaced many more.

“The DFC announced that they had sought and had gotten approval for funding specific investments across Africa to support Africa,” said Peter Ndegwa, Safaricom chief executive.

“In particular, for Ethiopia, they had indicated that they would be interested in funding consortium lead through the Vodafone Group, which is our consortium.”

Safaricom’s disclosure followed responses to analysts’ conference calls where the telecoms firm was asked how it planned to navigate the US sanctions in reference to the DFC loan. There were fears that DFC looked set to withdraw the loan offer permanently, which could have forced the consortium to source the cash from elsewhere and at a higher cost.

Other partners in the consortium are British development finance agency CDC Group and Japan’s Sumitomo Corporation.

It won the licence with a bid of $850 million (Sh91.6 billion) and aims to start operations in Ethiopia next year.

Part of the licence fee will be paid using debt, which will account for a significant share of the more than $8 billion (Sh862 billion) the consortium will invest in Ethiopia over the next decade. The DFC loan offers the consortium long-term financing on relatively favourable terms.

The international financier says its loans typically mature between five and 25 years, with repayment schedules set on quarterly or semi-annual basis.A grace period on principal repayment at the beginning of the loan term is also common. The interest rate is a “negotiated spread over the base-cost of funds.” Long-term US government bonds currently have interest rates of below two percent, setting a low base on which to price the DFC […]

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