The company’s debt increased 5.2 times from Sh14.7 billion a year earlier, making the telco one of the biggest corporate borrowers alongside other firms such as KenGen, Kenya Airways and Kenya Power.
Safaricom noted that it held cash and cash equivalents of Sh26.4 billion in the review period, placing its net debt at Sh50.5 billion. In its early life as a publicly-traded company, the telco used to fund its growth through debt, but it weaned itself off medium to long-term debt as its cash generation exceeded reinvestment needs.
The Ethiopian venture, however, requires major investment which will see Safaricom further increase its borrowings given its role as the major shareholder of the new business with a 55.7 percent stake.
Out of the Sh76.9 billion borrowing, Sh62.2 billion is in the form of short-term debt. Safaricom says it will convert some of the short-term loans into long-term facilities to manage currency risks and improve its working capital position.
"To support the payment of licence fees for the telecommunications licence awarded to the Safaricom-led consortium by the Government of Ethiopia, we undertook a one-year bridge facility of $400 million (Sh44.8 billion) to finance this venture," Safaricom said in a statement.
"We are currently seeking to term out the bridge facility through a long-term arrangement so as to manage our working capital requirements in the short term and minimise the currency risk for the dollar loan." The consortium, which includes South Africa’s Vodacom Group, paid a total of $850 million (Sh94.9 billion) for the licence.
Safaricom said it is investing an initial $600 million (Sh67 billion) in Ethiopia as part of its contribution to the consortium’s total investment pledge of $8 billion (Sh894 billion) over 10 years excluding the cost of the licence. It remains to be seen whether the telco will change its dividend policy as a result of the huge capital requirements in the Ethiopian venture.
Safaricom has been distributing at least 80 percent of its net income to shareholders, leaving the remaining 20 percent for reinvestment in infrastructure and retained earnings, which now stand at Sh133.7 billion. The telco could tap the retained earnings to partially fund its Ethiopian commitments.
Its parent company Vodacom Group has meanwhile told shareholders that it will lower its dividend payout rate from 90 percent to 75 percent of ordinary income as a result of its proposed acquisition of a 55 percent stake in Vodafone Egypt. Safaricom says it will fund the […]