South African Telkom to sell its Swiftnet towers for $356m

South African wireline and wireless telecommunications provider, Telkom has announced that it has agreed to a $356,445 million sale agreement for its Swiftnet masts and towers business to a consortium led by Actis, a UK-based investment firm.

As part of the deal, Telkom will sell Swiftnet to a newly created business called Towerco Bidco, which is 70% held by Actis, a global private equity firm, and 30% by Royal Bafokeng Holdings. Telkom said Swiftnet has around 4,000 sites in South Africa and leases co-location space to major mobile network operators.

According to a report, although an enterprise value of $356m has been attached to Swiftnet by the parties as the “base purchase price”, this will not be the amount paid by the Actis/Royal Bafokeng consortium.

Interest at a rate of prime minus 5% will accrue for the benefit of Telkom on the total purchase price from the effective date up to and including the closing date. The consortium will fund the purchase of Swiftnet from both equity and third-party debt subject to a nod from shareholders and regulators.

The base purchase price will be subject to the following adjustments:

• Positive adjustment for any cash.
• If applicable, a negative adjustment for a Telkom loan to Swiftnet (currently $19 million). At the closing date, the quantum of Telkom’s loan to Swiftnet is likely to have reduced to $11 million. This loan will not be transferred to the consortium and will be excluded from sale equity.
• A negative adjustment for any debt;
• If applicable, a negative adjustment for capital expenditure; and
• A positive or negative adjustment for working capital, with each of these adjustments to be calculated as at the effective date of the transaction.

“This decision marks a pivotal moment in Telkom’s journey towards unlocking shareholder value and streamlining our focus on core business operations,” Telkom Group CEO Serame Taukobong said in a statement today.

Taukobong added that beyond the financial implications, the transaction ensures seamless continuity for Telkom’s related businesses, particularly Telkom Consumer and Openserve. He also said the deal guarantees continued access to Swiftnet’s infrastructure under mutually beneficial terms.

Telkom tower sale deepens a culture of telco and tower business separation

If successfully concluded, Telkom will join rivals MTN South Africa and Cell C in selling tower infrastructure to focus on core business operations, leaving only Vodacom among the major mobile operators still owning its towers.

In June 2022, MTN Group sold its 13,000 tower locations to IHS Towers for a total sum of $412 million after successfully meeting stringent conditions imposed by the regulator which mandated them to fulfil certain obligations upon the merger.

Not only does the deal see IHS Towers provide power management services to MTN’s vast coverage in South Africa, but it will also see IHS Towers own 70% of the South African tower business. The remaining 30% is owned by a consortium with investors participating in the government’s Broad-based Black Economic Empowerment programme.

With 715 towers in Nigeria and about 30,000 towers across Africa, IHS Holdings became the third-largest mobile infrastructure provider in the world

The sale of the towers is part of an initial plan to raise money to pay down debt and simplify its portfolio of businesses spread across Africa and the Middle East. Recall that MTN sold its minority stakes in its tower joint ventures in Ghana and Uganda in January 2022.

Following that, the telco company raised about $523 million.

Similarly, telco service provider, Cell C sold 1400 existing towers and up to 1800 additional towers that are either under construction or constructed to American Tower Corporation in 2010. The deal is said to be valued at approximately $430 million.

In June 2023, Cell C also announced that it had successfully completed its network migration. The migration involves switching off all its tower infrastructure and handing over the building and operation of its cellular network to MTN. Yet, Cell C will use its spectrum and be fully in control of its customers’ experience.

The company promised that the migration would give customers expanded national coverage, higher quality connections, fewer dropped calls, and a more stable network during load-shedding.

The alternative to this approach would be for Cell C to invest billions yearly to roll out a physical radio access network in the traditional mobile network operator model.

Vodacom and MTN each spend around $527 million per year on their mobile networks in South Africa. In its most recent financial results, Telkom reportedly spent $131 million on its mobile network in 2022 alone.