African tower market heats up (Nov 2013)

First published May 2, 2013. Updated November 29, 2013.

The ‘TowerXchange tower transaction heatmap’ provides a visual illustration of our understanding of the level of progress in each African country toward transferring tower assets from at least one operator to be owned or managed and marketed by an independent towerco.

TowerXchange’s heatmap graphic consolidates information on countries where towers have already transferred from operator-captive to independent towerco, overlaying data on countries known to be targeted by towercos, together with countries where tower auctions are known to be imminent or ongoing. Finally we also blend in hints and rumours of future transactions which TowerXchange has received from multiple sources.

Tower auctions and transactions are by their very nature highly confidential so, while this graphic is based on many hundreds of hours of primary market research with key individuals in African towers, it can only be considered TowerXchange’s ‘best guess’ at the state of the market.

As ever, your comments are welcome on the online version of the TowerXchange heatmap at www.towerxchange.com/towerxchange-tower-transaction-heatmap-africa or direct to me at kosmotherly@towerxchange.com.

Airtel

Airtel are widely reported to be seeking third party buyers for an estimated 15,000 towers, representing all the towers in the 17 African countries in which they operate. The transaction may not be a portfolio deal as Airtel is entertaining bids for towers in individual countries. The transaction is believed to be motivated by Airtel’s desire to reduce their debts of just under US$10bn, which is almost exactly the amount Airtel paid (US$10.7bn) to acquire Zain’s operations in Africa.

The potential sale of Airtel’s towers follows previous rumours that it would set up it’s own towerco, indeed Africa towers registered subsidiaries in all 17 countries and were represented at the TowerXchange Meetup in October 2013. Bharti Airtel’s CFO recently quashed rumours of a potential sale of Africa Towers to Bharti Infratel, seemingly leaving the way clear for Africa’s ’Big Four’ towercos, or a well-financed new market entrant, to acquire the towers.

American Tower

American Tower continues to see international acquisitions as an engine for growth, but they may view Europe and South America as higher priorities than Africa for further acquisitions. The most ‘corporate’ of the towercos active in Africa, and with the lowest cost of capital, American Tower can afford to be selective about which markets they target, and are believed to be reluctant to enter African markets with high country risk. American Tower is seen as a growth stock, rising from US $1.6bn total revenue / US $1.1bn EBITDA five years ago to US $2.9bn total revenue / US $1.9bn EBITDA in 2012.

In Africa, American Tower set up joint venture towercos with MTN in Ghana and Uganda, where they now own 1,926 and 1,043 towers respectively, preceded by an acquisition from Cell C in South Africa, where American Tower currently own 1,604 towers (counts from American Tower’s Q1 2013 earnings release). American Tower continue to be linked with a sizeable deal with MTN in the premium South African market, while they’ve also been rumoured to considering a deal with MTN in Rwanda.

Eaton Towers

Eaton Towers agreed an operational lease deal with Vodafone Ghana to manage and market 750 towers. Subsequent deals followed with Warid and Orange in Uganda, unifying their already substantially shared network of 700 towers. In June 2013 Eaton confirmed their latest deal to manage and market close to 1,000 for Telkom Kenya (Orange). Eaton’s management team has excellent credentials and particularly strong links with Vodafone and Orange.

Eaton Towers’ backers include Standard Bank, the IFC and Capital International Private Equity Funds, who injected US $150m equity investment into the business prior to Eaton’s first transaction.

Etisalat

Etisalat were believed to be trying to sell all of their African operator’s towers in a bundled package in 2012, but complexity and local stakeholder resistance are believed to have scuppered the deal. They are now believed to be exploring single market transactions, with Tanzania or Nigeria likely to be first.

Helios Towers Africa

Chuck Green leads the Helios Towers Africa team, who were the pioneers of the first tower transactions in Africa, agreeing deals for 750 towers in Ghana then 729 and 1,020 towers in DRC and Tanzania respectively, in all cases forming joint venture towercos with Millicom. HTA subsequently added Vodacom Tanzania’s assets to their portfolio in the East African country. HTA are believed to be interested in further acquisitions in several new markets, as well as in markets in which they are already active.

Helios Towers Africa has raised over US $375m in equity capital from global investors such as Helios Investment Partners, Albright Capital Management, RIT Capital Partners, Quantum Strategic Partners and the IFC.

Helios Towers Nigeria

Helios Towers Nigeria were the first independent towerco in Africa, proving the business model in Nigeria where they still boast a tenancy ratio of 2.6 on the 800 towers they built themselves. HTN subsequently acquired 500 towers from Multi-Links.

HTN CEO Inder Bajaj declares his interest in further tower acquisitions in Nigeria in this interview.

IHS Africa

From relatively modest origins as a respected managed service provider, IHS has vaulted up the league table to become the top African towerco, by sites owned and managed. Major acquisitions from MTN in Cameroon and C?te d’Ivoire (for 827 and 931 towers respectively) were followed by deals with Orange to manage and market over 2,000 towers in the same countries. IHS already had substantial portfolios in Nigeria and a presence in Sudan. IHS has been bullish about their expansion plans, targeting 25,000 towers in Africa by 2018, according to CCO Rhys Philip, as quoted in the April 2013 edition of TowerXchange, in which we also identified the 14 additional African countries IHS are targeting. IHS are believed to be bidding aggressively for Zantel’s towers in Tanzania and for MTN’s towers in Zambia and Rwanda.

Wendel Group recently injected US $125m into IHS, and the French investor have a war chest of a potential additional US $250-375m to fund further acquisitions. Wendel are joined by UBC, IFC, Investec AM, FMO, ECP and Skye Bank as investors in IHS.

Millicom

First mover operators in partnership with Helios Towers Africa, Millicom retained a 40% equity stake in the joint venture towercos in Ghana, Tanzania and DRC, and are believed to be open to the possibility of further African tower transactions.

MTN

Africa’s leading mobile network operator has already completed tower transactions in Ghana and Uganda (joint ventures with American Tower in which MTN retained 49% equity) and sold and leased back towers from IHS in Cameroon and C?te d’Ivoire.

Despite frequent denials from the operator, rumours persist about a tower deal in South Africa, where American Tower’s capital, BEE credentials and experience would make them the most likely partner. A joint deal in Rwanda and Zambia is believed to be imminent, and Nigeria may follow. Some have speculated that most of MTN’s African towers could have been transferred to towercos by 2015.

Orange

Michel Faivre’s partage d’infrastructure programme appears to be gathering pace as the French-owned operator has been the most active in the African tower market in 2013. Deals to manage and market Orange’s 3,000+ towers have been agreed in Cameroon, C?te d’Ivoire and Kenya, as well as a sale and leaseback in Uganda last year. Sonatel assets in Mali, Senegal and the Guineas may be next - Sonatel is 42.33% owned by Orange and trades under the Orange brand. Orange affiliate Mobinil in Egypt are believed to be seeking buyers for the sale and leaseback of approximately 2,500 towers - see TowerXchange’s Egypt case study for more information.

SWAP

The dark horses of African towers, SWAP has a small portfolio of 680 towers in West Africa. While some commentators suggest SWAP has struggled after striking an early deal with tier two CDMA operator Starcomms (now part of Capcom) as an anchor tenant, they remain a significant player in the huge Nigerian market.

Don’t underestimate SWAP - former Helios Towers Nigeria CEO Fazal Hussain is SWAP International’s new CEO with a remit to raise finance and expand the towerco into new African countries.

Vodafone / Vodacom

Vodafone Ghana agreed an operational lease deal with Eaton in 2010, and sold their 1,149 towers to Helios Towers Africa in 2013. Vodafone has participated in some of the most comprehensive infrastructure sharing ventures in the world outside of Africa, such as Indus Towers in India and Cornerstone in the UK.

TowerXchange is tracking several would-be new entrant African towercos, including several established international towercos with an interest in potential tower transaction and build-to-suit opportunities in Africa. Some stakeholders report a concern that the ‘Big 4’ existing African towercos don’t have the ‘digestive capacity’ to keep up with operator demand to transfer tower assets - limited more by human resources than by capital, so TowerXchange feels there is room in the market for credible additional towerco players.

African towers remain a split market - substantial tower portfolios belonging to credit-worthy tier one anchor tenants in competitive, larger markets with higher GDP and more scope for voice and data growth are attracting aggressive bids. New licenses and upgrades to 3G or 4G represent potential new tenancy and upgrade revenue for towercos, while a clear, fairly priced infrastructure provider licensing regime helps make markets attractive.

However, smaller tower portfolios or portfolios owned by tier two tower portfolios, especially those coming to market late or from smaller markets where there is higher perceived country risk, often struggle to attract interest. TowerXchange feels there is also an opportunity for niche new entrant towercos prepared to enter smaller markets or markets where there is higher perceived country risk.

Country profiles:

Population*: 174,507,539

TowerXchange heatmap rating & commentary**: 3 local towercos. Tier 2 MNO tower sales. Etisalat and MTN deals rumoured[/accordion]

Population*: 93,877,025

TowerXchange heatmap rating & commentary**: Targeted by at least one towerco

Population*: 85,294,388

TowerXchange heatmap rating & commentary**: 4 local licensed infrastructure providers. 2-3 pan-African towercos interested. Mobinil towers coming to market

Population*: 75,507,308

TowerXchange heatmap rating & commentary**: HTA JV with Millicom. Further deals rumoured

Population*: 48,601,098

TowerXchange heatmap rating & commentary**: ATC deal with Cell-C. MTN deal rumoured

Population*: 48,261,942

TowerXchange heatmap rating & commentary**: HTA JV with Millicom and Vodacom. Zantel deal rumoured

Population*: 44,037,656

TowerXchange heatmap rating & commentary**: Eaton deal with Telkom Kenya announced in 2013

Population*: 38,087,812

Population*: 34,847,910

TowerXchange heatmap rating & commentary**: IHS already active. Targeted by at least one other towerco

Population*: 34,758,809

TowerXchange heatmap rating & commentary**: Eaton deals with Orange and Warid. ATC JV with MTN

Population*: 32,649,130

TowerXchange heatmap rating & commentary**: Targeted by at least one towerco

Population*: 25,199,609

TowerXchange heatmap rating & commentary**: HTA JV with Millicom. Eaton deal with Vodafone. ATC JV with MTN

Population*: 24,096,669

TowerXchange heatmap rating & commentary**: Targeted by at least one towerco

Population*: 22,599,098

TowerXchange heatmap rating & commentary**: Lazard appointed to sell Telma’s towers

Population*: 22,400,835

TowerXchange heatmap rating & commentary**: IHS deals with MTN and Orange

Population*: 20,549,221

TowerXchange heatmap rating & commentary**: IHS deals with MTN and Orange

*Source: CIA Factbook       **Source: TowerXchange research

The African telecom tower market is immature, yet progressing well. While experts agree that the tower industry is a “lumpy business”, the prevailing view is that tenancy ratios in Africa are more or less on targets set by business plans. In most cases Service Level Agreements are being achieved, and QoS is being improved.

The towerco business model is proving to be an excellent mechanism for the deployment of capex in RMS, hybrid and renewable energy solutions to reduce the African telecom industry’s crippling energy opex bill, and improve the site level profitability of towercos.

Site level profitability and improved tenancy ratios are primary contributors to Tower Cash Flow (TCF) and EBITDA improvements, which will need to be demonstrated to reduce investors’ perceptions of execution risk in the African tower industry. When perceptions of execution risk recede, as the business model is proved in the coming 3-5 years, institutional and infrastructure funds may be attracted to the market, ushering a wave of re-financing and consolidation, representing the second phase (“Scale and Consolidation”) of the African tower industry. Phase one of the African tower industry - “Proof of Concept” is progressing well to date.