Vodafone Holdings: Stunning syndicate

Vodafone's acquisition of a further 15% of South African telecoms provider Vodacom Holdings was the largest Rand syndicated loan to date, and closed in July 2006. It demonstrates the impressive levels of liquidity in the South African debt markets, and also the lengths to which telecoms operators have to go to pursue holdings in high-growth African mobile operators.

The ZAR16 billion ($2.28 billion) acquisition from VenFin Investment Holdings increased Vodafone's shareholding in Vodacom from 35% to 50%. The financing will be repaid from the Vodacom dividends received by Vodafone's 100% subsidiary, Vodafone Holdings. Vodacom has a presence in a number of African markets, notably in South Africa where it has 14.3 million of its 17.2 million customers, but also in Congo, Lesotho, Mozambique and Tanzania. Vodafone already had a presence in the African market in Egypt and Kenya.

Of the acquisition cost, ZAR8 billion was medium term non-recourse funding, and ZAR8 billion was equity provided by Vodafone. The debt was fully underwritten by joint bookrunners and mandated lead arrangers ABSA Capital and Standard Bank, and priced at 85bp over JIBAR (Johannesburg Inter-Bank Asking Rate). The syndication of the loan was described as "quick, clean and easy" by Crofton McLaughlin, in Standard Bank's syndications group, who co-ran the process. He cited Vodafone's name and reputation as a facilitating factor in the syndication.

In fact, the acquisition cost Vodafone a headline price of ZAR21 billion in the first instance. In addition to the 15% share of Vodacom, there were also a number of non-wireless assets in the bundle. The Rembrandt Group, a major shareholder of VenFin, arranged to buy back the additional assets at ZAR5 billion, simultaneously to the acquisition, leaving the Vodacom shares remaining with Vodafone at a net value of ZAR16 billion.

ABSA and Standard Bank were joint lead arrangers on the deal, which required two underwriters because of its size There were two fundamental deciding factors in mandating the bookrunners; firstly, it was in the interest of all parties to keep the deal in one currency, namely South African Rand, and Vodafone opted for a natural currency hedge and avoid the complications of dealing in two denominations. Though Vodafone had no previous relationship with Standard, the bank had strong distribution capabilities. And ABSA was a favoured choice, because Barclays, Vodafone's longstanding UK relationship bank, had recently acquired it. But Barclays would have been unable to underwrite the deal alone, as it has no South African balance sheet, and the ABSA acquisition gave it a competitive advantage in this respect.

Vodafone had initially financed the acquisition on 100% equity, of which 50% was a bridge loan from shareholder loans. The syndication process started at the same time as the acquisition closed. The paper was particularly appealing to investors because it carried the reputable names of both telecoms companies, and was marketed as Vodacom and Vodafone paper, both at a premium, with the cash flows from Vodacom servicing the debt. Vodafone pledged all of its 50% hold of Vodacom as collateral, valued at in excess of ZAR1 billion for each percentage; thus, the debt was six times over collateralised.

David Hall, deputy group treasurer at Vodafone Group, explains that Vodafone paid a premium for the shares they were acquired from a holding company. That Vodafone put up its entire stake in Vodacom – valued in excess of ZAR50 billion – as collateral against the ZAR8 billion debt, added to the appeal. The collateral arrangement makes it much harder for Vodafone to walk away from the deal, but the stability of both Vodafone and Vodacom, both in the South African market and internationally, proved attractive to debt investors.

Though no bank meeting was held, the syndication was three-times oversubscribed by local and foreign banks and also a number of funds. Participants in the syndication were Commerzbank, Future Growth, Nedbank Capital, Nedbank Corporate, Old Mutual, Rand Merchant Bank, Sanlam. There were two further international banks that entered the syndication late, but lost out due to aggressive early commitments from the existing participants, and the reluctance on the part of Vodafone and the bookrunners to diminish the committed participants' quotas. The commitments were offered as per the participants' requirements, rather than in specific denominations, though minimum and maximum caps were in place for bids.

Webber Wentzel Bowens was legal counsel for the sponsors, and Deneys Reitz acted for the lenders.

Vodafone Holdings
Status: Closed July 2006
Size: ZAR16 billion
Location: South Africa
Description: 5-year financing for Vodafone Holding's acquisition of a further 15% of African telecoms provider Vodacom from VenFin Inverstments Holdings
Sponsor: Vodafone Group
Equity: ZAR 8 billion
Debt: ZAR 8 million syndicated to 8 participating banks and funds, after the deal had been closed using 100% sponsor bridge loan. Debt to be repaid through Vodacom dividends.
Tenor: 5 years
Margin: 85pb over JIBAR
Mandated lead arrangers: ABSA Capital, Standard Bank
Sponsor legal counsel: Webber Wentzel Bowens
Lender legal counsel: Deneys Reitz