Vodacom Tanzania
African Telecoms Deal of the Year 2002
The African telecoms market is undergoing a great deal of change, with Vodacom and its South African peers at the forefront. While the continent has been dominated by cherry pickers ? operators that cream off the most lucrative customers, the new breed of operators is prepared to create a substantial and accessible network in their target countries. In this, they are aided by a mix of newly-sophisticated ECAs and increased lending capacity at domestic institutions.
The Vodacom Tanzania deal continues the trend set by operators such as MTN in countries such as Cameroon, but is Vodacom's first non-recourse deal. Vodacom is owned 50% by the Souuth African PTT Telkom, 31.5% by Vodafone of the UK, 15% by Venfin, the former investment arm of the Rembrandt tobacco group, and 3.5% by HCI, the investment vehicle of the South African miners' union. HCI recently disposed of 1.5% of its stake to Venfin, and local commentators say it may attempt to sell more.Vodacom is the fourth entrant into the Tanzanian market, but this late arrival is less of a problem than it might be in other countries. This is because existing operators tend to have a small footprint and focus exclusively on the high-end business users that will pay high rates for reliable service. Vodacom aims to build out a national network, not one covering affluent areas such as Dar-Es-Salaam or Zanzibar, and makes extensive use of prepaid tariffs.It has been working on putting together a financing package since 1999, when the environment for telecoms finance was a great deal less welcoming than it is now. The ability to find any meaningful liquidity in domestic banking was also a far off prospect. However, Vodacom mandated Standard Bank as advisor, and set about looking at possible sources of funding.One area where capacity is much constrained is vendor finance, the result of familiar balance sheet troubles at equipment suppliers. In this absence, Vodacom was able to work with the development banks of the Netherlands and Germany, FMO and DEG respectively. FMO provided $11.25 million, and DEG provided its equivalent in Euros. The two received praise from participants for their speedy and commercial attitude towards the transaction. That the project marks an exponential leap in telephony provision in Tanzania will have helped in decision making at the two banks.Standard Bank also provided $20 million from its South African banking operations, insured through the Export Credit Insurance Corporation (ECIC) of South Africa. This is the first telecoms transaction that ECIC has completed, which is surprising given how active the country's telecoms players have become. The transaction should have provided the ECA with a useful knowledge base for a string of transactions ahead.The final segment of the debt was the syndication of a further $22 million to Tanzanian institutions. At seven years, it is almost certainly the longest tenor achieved in the domestic market for a project. This facility, denominated in Tanzanian Shillings, was administered through Barclays, which has a substantial domestic operation. Standard provided around $1.5 million through its local branch. Standard also provided a bridge to the operator to roll out its operations while the full package was put in place.The deal was the largest syndication ever achieved in the Tanzanian bank market, and is likely to create the conditions for other small-scale financings. According to Debbie Millar at Vodacom in Johannesburg, conditions in the bank market have improved to such an extent that it may contemplate a second approach to banks, as part of a limited refinancing. An approach to a longer-dated market is unlikely, since Tanzania does not have a sufficiently well-developed pensions system to allow this.The Tanzanian economy has made great strides in recent years, and has benefited from strong growth and relative political stability. Nevertheless, political risk insurance was an important part of the coverage provided by ECIC, and also in Vodacom's decision to use project finance. According to Millar, ?the deal was our first project financing, although we intend to use non-recourse debt on our other African investments. It creates better transparency for outside participants, and improves our debt profile.?The Tanzanian regulators have been broadly supportive, although the country's telecoms industry has many of the characteristics of a free-for-all. The Tanzanian Communications Commission is now working with the World Bank on creating a more robust framework. The most important issue is interconnection with the PTT, Tanzanian Telecommunications Company limited (TTCL). TTCL is in the throes of privatisation, and a 35% stake in the company has been sold by the government to an MSI/Detecon consortium.The deal creates a useful precedent for other financings coming up in the region, including at least one from Vodacom. Its next investment, in the Democratic Republic of Congo, is in the works, again with Standard as the mandated lead. This should provide an even sterner test of the structure's suitability for emerging markets, although it is unlikely to feature as sizeable a slug of domestic debt.
Vodacom Tanzania
Status: closed March 2002
Location: Tanzania
Description: domestic bank, development bank and ECA financing of mobile GSM network
Sponsor: Vodacom
Debt: $117.5 million equivalent, in dollars, Euros and Tanzanian Shillings
Arranger: Standard Bank
Tenor: 7 years
Lawyers to the lenders: Cadwalader, Wickersham & Taft (international) Ishengoma, Masha, Mujulizi & Magai (local)
Lawyers to the sponsor: Clifford Chance
The African telecoms market is undergoing a great deal of change, with Vodacom and its South African peers at the forefront. While the continent has been dominated by cherry pickers ? operators that cream off the most lucrative customers, the new breed of operators is prepared to create a substantial and accessible network in their target countries. In this, they are aided by a mix of newly-sophisticated ECAs and increased lending capacity at domestic institutions.
The Vodacom Tanzania deal continues the trend set by operators such as MTN in countries such as Cameroon, but is Vodacom's first non-recourse deal. Vodacom is owned 50% by the Souuth African PTT Telkom, 31.5% by Vodafone of the UK, 15% by Venfin, the former investment arm of the Rembrandt tobacco group, and 3.5% by HCI, the investment vehicle of the South African miners' union. HCI recently disposed of 1.5% of its stake to Venfin, and local commentators say it may attempt to sell more.Vodacom is the fourth entrant into the Tanzanian market, but this late arrival is less of a problem than it might be in other countries. This is because existing operators tend to have a small footprint and focus exclusively on the high-end business users that will pay high rates for reliable service. Vodacom aims to build out a national network, not one covering affluent areas such as Dar-Es-Salaam or Zanzibar, and makes extensive use of prepaid tariffs.It has been working on putting together a financing package since 1999, when the environment for telecoms finance was a great deal less welcoming than it is now. The ability to find any meaningful liquidity in domestic banking was also a far off prospect. However, Vodacom mandated Standard Bank as advisor, and set about looking at possible sources of funding.One area where capacity is much constrained is vendor finance, the result of familiar balance sheet troubles at equipment suppliers. In this absence, Vodacom was able to work with the development banks of the Netherlands and Germany, FMO and DEG respectively. FMO provided $11.25 million, and DEG provided its equivalent in Euros. The two received praise from participants for their speedy and commercial attitude towards the transaction. That the project marks an exponential leap in telephony provision in Tanzania will have helped in decision making at the two banks.Standard Bank also provided $20 million from its South African banking operations, insured through the Export Credit Insurance Corporation (ECIC) of South Africa. This is the first telecoms transaction that ECIC has completed, which is surprising given how active the country's telecoms players have become. The transaction should have provided the ECA with a useful knowledge base for a string of transactions ahead.The final segment of the debt was the syndication of a further $22 million to Tanzanian institutions. At seven years, it is almost certainly the longest tenor achieved in the domestic market for a project. This facility, denominated in Tanzanian Shillings, was administered through Barclays, which has a substantial domestic operation. Standard provided around $1.5 million through its local branch. Standard also provided a bridge to the operator to roll out its operations while the full package was put in place.The deal was the largest syndication ever achieved in the Tanzanian bank market, and is likely to create the conditions for other small-scale financings. According to Debbie Millar at Vodacom in Johannesburg, conditions in the bank market have improved to such an extent that it may contemplate a second approach to banks, as part of a limited refinancing. An approach to a longer-dated market is unlikely, since Tanzania does not have a sufficiently well-developed pensions system to allow this.The Tanzanian economy has made great strides in recent years, and has benefited from strong growth and relative political stability. Nevertheless, political risk insurance was an important part of the coverage provided by ECIC, and also in Vodacom's decision to use project finance. According to Millar, ?the deal was our first project financing, although we intend to use non-recourse debt on our other African investments. It creates better transparency for outside participants, and improves our debt profile.?The Tanzanian regulators have been broadly supportive, although the country's telecoms industry has many of the characteristics of a free-for-all. The Tanzanian Communications Commission is now working with the World Bank on creating a more robust framework. The most important issue is interconnection with the PTT, Tanzanian Telecommunications Company limited (TTCL). TTCL is in the throes of privatisation, and a 35% stake in the company has been sold by the government to an MSI/Detecon consortium.The deal creates a useful precedent for other financings coming up in the region, including at least one from Vodacom. Its next investment, in the Democratic Republic of Congo, is in the works, again with Standard as the mandated lead. This should provide an even sterner test of the structure's suitability for emerging markets, although it is unlikely to feature as sizeable a slug of domestic debt.
Vodacom Tanzania
Status: closed March 2002
Location: Tanzania
Description: domestic bank, development bank and ECA financing of mobile GSM network
Sponsor: Vodacom
Debt: $117.5 million equivalent, in dollars, Euros and Tanzanian Shillings
Arranger: Standard Bank
Tenor: 7 years
Lawyers to the lenders: Cadwalader, Wickersham & Taft (international) Ishengoma, Masha, Mujulizi & Magai (local)
Lawyers to the sponsor: Clifford Chance
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