Finding the balance: MobiNil’s CFO explains the rationale and strategy behind their tower sale

MobiNil’s deal with Eaton Towers in April 2015 consisted of around 30% of their portfolio (up to 2,000 towers) and raised up to US$131mn. As the first tower deal in the MENA region, all eyes will be on MobiNil and Eaton as the deal progresses to work out which models will work in the region. In this article Kais Ben Hamida, CFO of MobiNil and the lead on the deal, explains how they set out key parameters which enabled them to achieve the right balance between upfront cash and opex.

TowerXchange: Congratulations on the announcement of the landmark first major tower transaction in the Middle East and North Africa!

We are very pleased with the result. For us it was a challenge to do this deal in an environment which was extremely hectic due to political upheaval and the ‘Arab Spring’ events. Being able to maintain the momentum and keep interested parties on the deal was a challenging task so we’re delighted to have reached this result.

TowerXchange: How much interest did you have in the portfolio and what made Eaton Towers’ proposal the most attractive to you?

This deal represents about 30% of our total portfolio, up to 2,000 towers. Eaton Towers was selected on the basis of a competitive bidding process as it is the case in any M&A transaction. We had received several statements of interest from various international and local parties and we requested offers from the various parties during several rounds of bidding. It took a long time and we had to stop and re-open the process at couple of times due to the unstable situation in the country.

Eaton Towers was retained on the basis of: 1) an assessment of their track record and knowledge in managing towers and 2) the economics of the deal which covers the upfront cash payment and level of annual fees to be paid. We also considered many other elements related to various terms and conditions of the transaction. All the parameters we had put in place were assessed to form a shortlist of bidders with whom we engaged in negotiations to finally select Eaton.

TowerXchange: Would it be fair to characterise the structure of this transaction as focused on opex reduction rather than maximising cash released?

No, we were not solely focussed on opex reduction, this transaction has also been driven by our objective to reduce debt. The upfront cash was an important element of the transaction however we didn’t want to sacrifice the opex so since the beginning of the process we looked for a deal which would represent a balance between upfront cash and impact on opex. We really wanted the impact on opex to be largely neutral.

TowerXchange: We understand there has been a lot of bi-lateral infrastructure sharing between operators sharing Egypt’s ~19,000 towers. Can you give a few insights into the extent of tower sharing that was already taking place in the country even before the entry of Eaton Towers.

Tower sharing in Egypt I would say is in line with what is done in many other countries and with general industry trends. It’s about seeking efficiency in tower management; we didn’t wait for the professional tower sharing players to engage in site sharing activity. Bi-lateral sharing is something we’ve been doing since 2009 with Vodafone and then later with Etisalat. We believe that the arrival of a third party will accelerate infrastructure sharing in Egypt and take the market a step further in tower sharing activity.

I think this will be particularly relevant in terms of future site builds in connection with network deployment to cope with the significant growth of data services.

TowerXchange: Orange in Africa usually favour a ‘Manage with License to Lease’ model, what made you opt for a straight ‘Sale and Leaseback’ transaction?

We chose this model as one of the objectives of the transaction was to reduce our debt, which wasn’t the case in other transactions Orange has done in Africa. It shows that there’s no ‘one size fits all’ model in this industry. In our strategic assessment we considered various models and structured the transaction to achieve objectives relevant to our situation in Egypt. For future deals we may opt to dispose of towers totally or partially, it really depends on parameters we define at the beginning of a process.

TowerXchange: We understand that MobiNil have retained around two thirds of its towers, what were your criteria for the towers you brought to market and is there a potential to extend the agreement with Eaton?

These transactions are quite complex and the higher the number of towers the more the complexity. Sometimes you can kill a transaction if it is too complex. This is why we said we’d select a sub-portfolio and work on that in order to avoid longer preparation time and higher complexity.

You have also to consider that the use of independent towercos in MENA is a new model, this is the first tower transaction in this part of the world. It was important for us to start smaller and see how it works. If it works well we can expand it. We selected areas where we have a high percentage of towers vs rooftops (Cairo was therefore not included) which is more attractive to a towerco, and chose regions where we wanted to develop this concept and sell. We may consider expanding under the same model or use a different model or keep it as it is, depends on how the first step will work out and how the market reacts.

TowerXchange: You mention that your current partnership with Eaton does not bring them into Cairo, because much of the network plan consists of rooftop sites. Is there the potential to share such sites in Cairo in the future?

All options are open, we just want to see how it evolves. There’s also no set formula for any future potential transaction, we may try Manage with License to Lease rather than Sale and Leaseback, we will see.

TowerXchange: How will MobiNil’s relationship with Eaton Towers be managed post sale?

It’s a 15 year partnership between a towerco and MNO by which Eaton will provide management of the passive infrastructure including energy, security, maintenance, rental and other passive infrastructure related services and we hope that such relationships will be successful and beneficial to both parties.

TowerXchange: Has MobiNil made much use of Egypt’s local tower companies? We understand four companies were licensed to build and share passive infrastructure three years ago, and that HOI-MEA has built several towers - do you forsee the local tower builders continuing to play a role, or do you anticipate most of MobiNil’s build to suit activity being executed by Eaton?

In our deal with Eaton Towers we have an agreement on the way we manage the build to suit activity in the region related to the deal. Outside of that region, we’re free to use whoever of the outsourcers provides us with the best services.

TowerXchange: How did the strong possibility of a fourth operator (MVNO) coming to market after the next parliament is formed affect your decision making process?

Our decision making was not driven by the fourth operator, but we knew the possibility of a fourth operator would make the deal more attractive to any potential buyer. All the bidders considered this possibility and factored it in various manners in the deal.

TowerXchange: Do you feel your tower sale will spark other tower transactions in Egypt? What will that mean for MobiNil?

This is a model that is just being introduced in MENA and Egypt so I believe that people will look at it carefully and if it’s successful I’d expect that it can be replicated. In Egypt itself we have 19,000 towers so there’s certainly potential for replication here and also in other countries in the MENA region. So yes, I would expect that people will be looking at this transaction to see how it evolves.