Vodafone Egypt poised to become key player in financial market after acquisition by Vodacom

By Sherif Tarek
Posted on Monday, 6 December 2021 16:41, updated on Tuesday, 7 December 2021 15:10

People walk past Vodafone Egypt Telecommunications Co in the Cairo suburb of Maadi
People walk past Vodafone Egypt Telecommunications Co in the Cairo suburb of Maadi, Egypt February 6, 2018. REUTERS/Amr Abdallah Dalsh

Vodacom plans to spare no effort to catapult Vodafone Egypt into the top providers of the country’s financial sector upon acquiring it, capitalising on both firms’ resources and expertise as well as a fintech boom in Egypt, where banking and non-banking digital financial services are largely underpenetrated. 

Vodafone Egypt’s revenue from financial services is comparably negligible to that of Vodacom Group, its South African potential buyer.

But after the compilation of the acquisition of a majority stake in Vodafone Egypt, expectedly in the first quarter of next year, the Johannesburg-based mobile services provider will be poised to unleash the full potential of the leading Egyptian mobile operator in the financial sector.

“Vodafone Egypt generates less than 2% of revenue from financial services,” a Vodacom spokesperson tells The Africa Report. “Across the Vodacom Group, our international markets are already above 20% on average, while markets like Tanzania and Kenya are close to 40% of revenues.”

Vodacom’s formidable presence in Sub-Saharan Africa also includes operations in Mozambique, Lesotho, and Ethiopia. The continent’s largest telecommunications provider by revenue and market cap operates in Central Africa’s DRC as well.

The acquisition of Vodafone’s Egyptian unit ushers in the first expansion of Vodacom into North Africa.

“We believe that through a dedicated focus on financial services we can unlock material revenue upside for Vodafone Egypt,” the Vodacom spokesperson says.

Awaiting approvals

Vodacom agreed last month to buy a 55% stake in Vodafone Egypt currently held by Vodafone Group PLC, Europe’s largest mobile and fixed network operator, for $2.74 bn. Egyptian joint stock company, Telecom Egypt, owns the remaining 45%.

The Vodacom offer was unveiled after an “amended agreement with Telecom Egypt, through which the restructuring was generally approved, and therefore Vodafone Group and Vodacom had the opportunity to negotiate the completion of this deal,” Ayman Essam, External Affairs and Legal Director of Vodafone Egypt, tells The Africa Report.

Vodacom tabled the offer to Vodafone Group after completing due diligence. “We are currently working on officially notifying the concerned authorities, and we will await the approval of the National Telecommunication Regulatory Authority and the Financial Regulatory Authority,” he says.

No changes to Vodafone Egypt brand, leadership

The deal will increase the ownership of Vodafone Group PLC, Europe’s largest mobile and fixed network operator, in Vodacom from 60.5% to 65.1%.

Vodafone Egypt will not be renamed upon the completion of the acquisition, which will also instigate no changes to the company’s leadership, says Essam. “This step is a simple and strategic transfer of ownership that has no effect on price plans, offers or customers.”

He adds: “We consider this step as restructuring of Vodafone Group companies. The process of transferring ownership is an internal transfer process between the group companies, and there is no external investor in it.”

Market conditions

Vodacom is setting foot in Egypt at a time when fintech is growing in the country, especially since the pandemic that has seen more prioritisation of e-solutions.

For several years, the government has been incessantly pushing to turn Egypt into a cashless society; a major task to accomplish given nearly two thirds of the 102-million population remain unbanked.

As of September, Egypt ratified a new banking law that would allow for the first time the launch of digital banks. Analysts expect this change to chart the way forward to reaching out to unbanked citizens, especially in rural areas.

Several traditional banks as well as private companies have reportedly sought digital banking licenses, which Egypt’s central bank will start issuing after bylaws come into effect.

When asked whether Vodacom has already taken steps to apply for a digital banking license in Egypt, the Vodacom spokesperson says this “will be decided pending the conclusion of the transaction and the necessary regulatory and shareholder approvals.”

Vodafone Cash development

For his part, Essam reveals that Vodafone Cash, the country’s largest mobile wallet provider, will branch out into banking services with Vodacom throwing its weight behind it.

“With financial inclusion and e-payments being among the top pillars of Vodafone Egypt’s strategy, the company’s vision aims through this strategic acquisition to make Vodafone Cash service equivalent to the banking service targeting the unbanked community,” he says.

Vodafone Cash accounted for 65% of the country’s mobile wallets in the first half of 2021, followed by Orange (20%), Etisalat (11%), and WE (4%), according to the National Telecom Regulatory Authority.

Serving nearly 11 million users, Vodafone Cash currently offers various services such as transferring money as well as paying bills.

New products

Vodacom has yet to delineate goals with Vodafone Egypt’s financial services team after the deal is completed. But what is certain at this point is that new products will be introduced to the Egyptian market.

“We intend to leverage our fintech platform capabilities, which includes Vodasure, Vodalend and Vodapay and the product roadmap of M-Pesa Africa,” says the Vodacom spokesperson.

Vodafone Egypt is ideally positioned to capture growth in a burgeoning ICT market…

Vodasure provides emergency medical assistance and Vodalend short-term business loans, while Vodapay is a multiple use app offering access to financial services and online shopping and lifestyle tools, and is backed by mobile money specialist, Alipay.

M-Pesa, jointly acquired by Vodacom and Kenyan mobile operator Safaricom from Vodafone Group through a new joint venture last year, offers an array of banking and non-banking financial services including money transfer, e-payment and micro-financing. It operates in all markets where Vodacom exists.

“We intend to replicate our strategic focus on financial services in Egypt from other markets,” the spokesperson says. “This means we will leverage our financial services product roadmap, including our super-app approach, which brings together our capabilities across merchants and consumers in payments, lending, investments, insurance and e-commerce.”

Widely deemed underpenetrated, Egypt’s non-banking financial services are forecasted to significantly grow until 2025, according to research and advisory company Oxford Business Group.

Bee, Masary deal in tatters?

Early this year, Vodafone Egypt reached an agreement with Ebtikar, a financial services firm, to acquire a 20% stake in each of its subsidiaries, Bee and Masary, a move that was touted as a sizable boost to the mobile operator’s financial services.

Bee is an e-payment solution provider that operates a retail network of Points of Sale (PoS), while Masary is a payment facilitator and aggregator that collaborates with other service providers, including all four mobile operators in the country: Vodafone, Orange, Etisalat and Telecom Egypt’s WE.

Vodafone Egypt reportedly completed due diligence on both platforms four months ago. The deal has seemingly been shelved ever since, however.

No official from the involved companies could be reached for a comment on the fate of the acquisition of Bee and Masary, and whether it was nixed as a result of Vodacom’s impending takeover and the ensuing launch of new services in Egypt.

Ebtikar was originally set to launch its initial public offering (IPO) on the Egyptian Exchange (EGX) after the acquisition of Bee and Masary goes through, “whereupon [the IPO] value would be higher,” says Sherif el-Etr, a financial analyst focusing on fintech at Cairo-based investment bank Prime Securities.

As it remains unclear when the deal could possibly be sealed, the IPO might well be launched beforehand, he tells The Africa Report.

Originally slated for the fourth quarter of 2021, Ebtikar’s offering has been rescheduled for the first quarter of next year, according to a report by Daily News Egypt that cites anonymous sources.

This may suggest Vodafone Egypt’s acquisition of Bee and Masary remains on the cards and Ebtikar still holds out hope to make its EGX debut after the deal is concluded.

‘Operating profit growth’

Having operated for 23 years, Vodafone Egypt – the country’s second oldest mobile operator after Orange – also has the largest mobile customer base in the country, estimated at 43 million customers.

“Vodafone Egypt is ideally positioned to capture growth in a burgeoning ICT market, and provides our shareholders with an exciting revenue and profitability diversification opportunity and the potential to accelerate the group’s medium-term operating profit growth potential into double digits,” the Vodacom spokesperson says.

Vodacom’s operating profit slipped 0.2% year on year to 27,652 billion South African rand ($1.713bn) in the previous fiscal year ending in March, “impacted by a R745m prior year one-off gain related to the M-Pesa Africa joint venture acquisition,” according to the company’s financial statements.

In the first half of its previous financial year, which ended in September, Vodafone Egypt’s operating profit stood at LE7.2bn (nearly $458.4m), recording a 9.7% year-on-year jump.

Last year, Saudi Telecom Company (STC) lodged a bid to purchase the 55% stake in Vodafone Egypt for $2.4bn. The acquisition collapsed in December 2020 after the monarchy’s largest telecom operator repeatedly missed deadlines to complete the deal.

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