The Rise Fund to Invest $200m in Airtel Africa

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Emma Okonji

Airtel Africa, provider of telecommunications and mobile money services, with presence in 14 African countries, including Nigeria, has signed an agreement with The Rise Fund, the global impact investing platform, to invest $200 million in Airtel Africa’s Mobile Money Business at $2.65 billion valuation.
Airtel Mobile Commerce BV (AMC BV) is a wholly-owned subsidiary of Airtel Africa plc.

AMC BV is currently the holding company for some of Airtel Africa’s mobile money operations, and is now intended to own and operate the mobile money businesses across all of Airtel Africa’s 14 operating countries, including Nigeria.

The transaction values Airtel Africa’s mobile money business at $2.65 billion on a cash and debt-free basis.
According to a statement yesterday by Airtel Africa, and signed by the group’s Company Secretary, Mr. Simon O’Hara, The Rise Fund will hold a minority stake in AMC BV upon completion of the transaction, with Airtel Africa continuing to hold the remaining majority stake.

The statement, however, added that the transaction is subject to customary closing conditions, including regulatory filings and approvals, as well as the inclusion of specified mobile money business assets and contracts into AMC BV.

“The transaction is the latest step in the group’s pursuit of strategic asset monetisation and investment opportunities, and it is the aim of Airtel Africa to explore the potential listing of the mobile money business within four years,” the statement added.

It also said the group was discussing with other potential investors for possible further minority investments in Airtel Money, up to a total of 25 per cent of the issued share capital of AMC BV.
According to the statement, the proceeds from the transaction will be used to reduce the group’s debt and invest in network and sales infrastructure in the operating countries.

Operating under the Airtel Money brand, Airtel Africa’s mobile money services is a leading digital mobile financial services platform.
It caters to a large market in Africa, characterised by limited access to formal financial institutions with limited banking infrastructure.

These include mobile wallet deposit and withdrawals, merchant and commercial payments, benefits transfers, loans and savings, virtual credit card and international money transfers.

Commenting on the deal, the CEO of Airtel Africa, Raghunath Mandava, noted that in line with the company’s vision of enhancing financial inclusion, Airtel Africa offers a unique digital mobile financial services platform under the Airtel Money brand.

“In most of our markets, there is limited access to traditional financial institutions, and little banking infrastructure, with less than half of the population having a bank account across sub-Saharan Africa.

“Our markets, therefore, afford substantial market potential for mobile money services to meet the needs of the tens of millions of customers in Africa who have little or no access to banking and financial services, and this demand is driving growth,” Mandava said.

He stated that with the announcement, the company welcomed The Rise Fund as an investor in its mobile money business and as a partner to help Airtel realise the full potential from the substantial opportunity to bank the unbanked across Africa.

Partner at TPG who leads Africa investing for The Rise Fund, Yemi Lalude, added: “Financial inclusion is a global issue that is most acute in Africa. Through Airtel Money, Airtel Africa has built a unique platform that is closing the gap between traditional financial institutions and the millions of unbanked Africans across the 14 countries where Airtel Africa operates.”

Although Mobile money services are available across the group’s 14 countries of operation, in Nigeria the group offers Airtel Money services through a partnership with a local bank and has applied for its own mobile banking licence.

The intention is that all mobile money operations will be owned and operated by AMC BV.
Airtel said in its most recent reported results for Q3 that the mobile money service segment that is corresponding to all the businesses that are intended to be transferred to AMC BV, delivered a strong operational performance.

The segment, according to the statement, generated revenue of $110 million ($440 million annualised), and underlying EBITDA of $54 million ($216 million annualised) at a margin of 48.7 per cent.

The year-on-year revenue growth for the quarter was 41.1 per cent in constant currency, largely driven by 29 per cent growth in the customer base to 21.5 million, and 9.7 per cent ARPU growth.

Growth in transaction value was 53.0 per cent to $12.8 billion ($51 billion annualised), the statement said.
It added that the company’s mobile money business benefits from a strong network presence with its core telecom business through the extensive distribution platform of kiosks and mini-shops as well as dedicated Airtel Money branches are supplementing its extensive agent network, to facilitate customers’ assured wallet and cash.

“We have a clear strategy to continue to drive sustainable long-term growth in Airtel Money with a focus on assured float availability, distribution expansion and increased usage cases for our customers.

“In this year alone, we have added partnerships with MasterCard, Samsung, Asante, Standard Chartered Bank, MoneyGram, Mukuru and WorldRemit to expand both the range and depth of the Airtel Money offerings and to further drive customer growth and penetration. The profits before tax in the full year ending 31 March 2020 and the value of gross assets as of that date, attributable to the mobile money businesses were $143.4 million and $463.2 million, respectively,” the statement said.

According to it, key elements of the transaction indicate that a newly incorporated investment vehicle of The Rise Fund will invest $200 million through a secondary purchase of shares in AMC BV from Airtel Africa.

The transaction will close in two stages – $150 million will be invested at first close, once the transfer of sufficient mobile money operations and contracts into AMC BV has been completed, with $50 million to be invested at second close upon further transfers.

Airtel Africa added that its aim is to explore the potential listing of the mobile money business within four years.
It said: “Under the terms of the transaction and in very limited circumstances, in the event that there is no Initial Public Offering of shares in AMC BV within four years of the first close, or in the event of changes of control without TPG’s prior approval, TPG would have the option, so as to provide liquidity to them, to sell its shares in AMC BV to Airtel Africa or its affiliates at fair market value that will be determined by a mutually agreed merchant bank using an agreed internationally accepted valuation methodology.

“The option is subject to a minimum price equal to the consideration paid by The Rise Fund for its investment (less the value of all distributions and any proceeds of the sale of its shares, and with no time value of money or minimum return built-in) and a maximum number of shares in AMC BV such that the consideration does not exceed $400 million.”
The transaction is expected to reach first close over the next three to four months.
From the first close, The Rise Fund will be entitled to appoint a director to the board of AMC BV and to certain customary information and minority protection rights.