RMB sees more opportunities for capital allocation in telecoms infrastructure in SA and the wider African continent as the investment bank helps to pour billions of rand into the sector.
The bank, which recently helped to fund Royal Bafokeng’s partial acquisition of Telkom’s SwiftNet, says it expects to see more deals coming onto the table driven by a growing need for connectivity for businesses and consumers.
“SA is still quite a stable market, but it has had its problems,” Arun Varughese, RMB’s co-head of technology, media and telecommunication, told Business Day TV.
He said mobile network operators such as Vodacom and MTN have found their challenges, both in Nigeria and SA, with load-shedding and rising competitiveness around data packages, driven by the lower use of voice and SMS services.
“So there are a lot of headwinds and also they’ve got to spend lots of capex to keep their networks up to the right standard.
“That being said, the digital infrastructure market — towers, fibre, data centres — has been doing exceptionally well,” he said, highlighting that fibre companies are expanding across SA and going into Africa.
“We’ve seen all the transactions for data centres, we’ve seen all the major data players break ground in SA, and we’ve seen the undersea cables land. The digital infrastructure story is quite a good one and we still have a long way to go — for example, connectivity in rural, informal and lower-LSM areas ... that still hasn’t happened.”
Plugging holes in rural and outlying areas has been a bone of contention in SA and the wider continent for some time, helping to explain the excitement around satellite technologies such as Elon Musk’s Starlink service.
A number of African countries are excited about the prospects of connecting more people at lower costs, but governments, including that of SA, are sceptical about granting operating licences to Starlink.
In March, Telkom announced it had sold Swiftnet, its masts and towers business, for R6.75bn to a consortium of equity investors led and managed by Actis, which has 70% of the purchaser’s shares. The balance is held by Royal Bafokeng Holdings (RBH). RMB acted as financial adviser to RBH on the transaction.
With up to 40% of cellphone towers still in the hands of mobile operators, the bank anticipates that more operators will be looking to offload their portfolios in favour of leasing back the infrastructure. This creates further opportunity for deals.
“If you look at the tower space, MTN sold all their tower to IHS in 2021, Vodacom has separated all their towers into a new vehicle and we’ve seen African telcos like IHS and Helios Towers buy portfolios in Brazil, Oman and Senegal,” said Varughese.
Attractive
For investors, masts and towers make an attractive investment given their predictable and stable revenues, owing to the long-term contracts that are a norm in the industry.
“So yes, the nature of the tower market is one where M&A drives a lot of acquisitions and we think that there’ll be a lot more of these to come because still about 30% or 40% of towers in Africa are still owned by [mobile network operators] and eventually we think those will all end up in private hands,” he said.
“The other trend of needing more and more mobile connectivity ... just from that, we think we’ll see a lot more activity.”
In 2022, fibre network operator Octotel secured R2bn in financing from RMB to push its network rollout, particularly in outlying parts of SA. At the time, it planned to use the funds to reach 500,000 homes.
As noted by bankers Chele Moyo and Barbara Asafu-Adjaye, from Absa, despite significant progress being made on the continent, nearly 300-million Africans still lack access to high-speed broadband internet. “Mobile devices remain the primary means of internet access, highlighting the importance of mobile networks in bridging the digital divide.”
With ongoing investment in telecommunications infrastructure and supportive regulatory frameworks, improved affordable connectivity and access to higher speed broadband have the potential to propel Sub-Saharan Africa into the forefront of the global digital economy, Absa said.
Standard Bank is also bullish on this segment.
Vumatel and Dark Fibre Africa’s parent company, Maziv, secured a R25bn loan led by Standard Bank for a fibre expansion initiative in late 2023. In 2022, Standard Bank backed MetroFibre Networx’s R5bn fibreoptic expansion through a similar arrangement.
Seacom, one of Africa’s largest undersea cable providers, recently received backing from the International Finance Corporation in the form of a $260m loan.
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