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Telkom final week announced an settlement with a consortium of consumers to dump its towers subsidiary, Swiftnet, for $356 million. Telkom mentioned that the sale aligns with the corporate’s technique to dump non-core property to give attention to unlocking the intrinsic worth of its extra core operations. The corporate turns into the most recent telco in South Africa to dump its tower property, following Cell C, Vodacom and MTN.
Again in 2011, Cell C sold off its 3,200 towers to American Tower Company for $430 million. In June 2022, MTN sold its 5,701 towers to Nigeria’s IHS Towers for R6.4 billion (~$337 million), with the corporate stating that it’s going to use the proceeds of the sale to fund the acquisition of spectrum to high-demand spectrum frequencies and supply it with extra steadiness sheet flexibility. The next month, in July 2022, Vodacom announced that it will unbundle its over 9,000 tower property right into a separate subsidiary through which it will maintain a 100% shareholding. The telco mentioned the transfer was to boost asset returns and decrease communication prices. Final yr, Cell C announced that it will swap off tower entry and have its subscribers roam on towers owned or leased by MTN.
As these SA telcos proceed to dump their tower property, with causes starting from elevating funds for different investments to supposedly reducing communication prices and shifting enterprise methods, specialists who spoke to TechCabal say there could also be different causes at play.
In accordance with Jimmy Moyaha, founding father of funding agency Lebowa Capital, telcos could also be pursuing strategic targets which don’t necessitate having the towers on their steadiness sheets. “We’re seeing telcos quite deploy their capex into extra strategic issues like shopping for spectrum and enhancing community capabilities,” he mentioned. Cell C and MTN took this route as they instantly leased again the towers from their respective consumers.
Moreover, in keeping with Moyaha, loadshedding may additionally be a think about pushing telcos to maneuver the towers off of their steadiness sheets. With the loadshedding state of affairs having gotten worse over the previous couple of years, telcos have always reiterated of their monetary outcomes the funding that they’ve needed to make in backup energy throughout blackouts.
MTN has said prior to now that loadshedding led to a rise in thefts at its towers; Vodacom has mentioned it needed to make investments R1 billion (~$200 million) on backup energy for its towers; and Telkom has mentioned it needed to spend over R500 million (~$100 million) on diesel for the backup turbines wanted to run its towers.
“When loadshedding is extreme, backup energy doesn’t have sufficient time to recharge and replenish itself,” added Moyaha. “This then necessitates the necessity for added energy options to be deployed and that turns into a really capex-intensive enterprise.”
One more (doable) cause…
In accordance with Tshepo Magagane, an funding analyst, shareholder strain may additionally be a major issue behind the selloffs. During the last two years, when a lot of the sell-offs have taken place, Vodacom, MTN and Telkom have all seen their share costs tumble by 38%, 53% and 39% respectively. “Share worth underperformance [has led] to strain from shareholders which ends up in the businesses convincing themselves that the tower property are ‘non-core’.”
He provides that the truth that personal fairness corporations, which emphasise cashflow era, are shopping for up the property signifies their cashflow significance. “Infrastructure property [like towers] permit income prediction, steady margins, environment friendly working capital deployment, manageable and incremental upkeep capex to buyers,” mentioned Magagane.
Following its acquisition of Cell C’s towers, American Tower Company reported vital returns from the acquisition. On the time, the corporate said that it was producing a return on invested capital of roughly 20%. Every tower had roughly two tenants at a lease fee of $2,500 per tenant.
In accordance with Magagane, the prominence of such offers is more likely to entice much more personal fairness buyers to hunt related alternatives on the continent. “A consummation of offers this massive ought to act as a catalyst for different buyers to get up to the truth that there are alternatives in South Africa and Africa,” he concluded.
