Helios Towers enters a new phase post-IPO

On Tuesday 15th October Helios Towers went public. Helios Towers is active in Ghana, Congo Brazzaville, the DRC, Tanzania and South Africa. After reviewing but not pursuing an IPO in 2018, Helios Towers took the plunge last week. The towerco went public with a market capitalisation of US$1.45bn against a Q2 2019 adjusted EBITDA of US$201mn. TowerXchange discuss the transaction with CEO Kash Pandya as the company and African industry enter a new phase. 

TowerXchange: Why has Helios Towers taken the step now to IPO? What made the time right? 

We have been ready to IPO for some time, but the time was right because we wanted access to further investment equity, and have now raised well over US$100mn through the IPO ready to invest in new acquisitions. We also have debt capacity too, and with our targeted EBIDTA to debt ratio of 3.5x-4.5x we have around US$300mn of ammunition. At historical purchase prices that translates to 2-3,000 towers and we think there are opportunities out there. 

Listing also allows us to raise further capital more easily, as we require it. Across Africa we are seeing a renewed vigour for MNOs to sell their towers. Of the 225,000 towers in Africa, only 27% of towers are owned by towercos (editor: this figure differs from TowerXchange’s own estimates as Helios include markets in North Africa which are counted in our MENA figures). There are 164,000 towers owned by MNOs which could pass to towerco ownership. There are also vast geographies in Africa without coverage, and many countries without independent tower companies at all.

We listed our shares at 115p, and reached 123p on the first day, but I do not want to be fixated on the share price. The share price can be impacted by a number of things outside the control of the business, so as CEO and as management we aren’t focusing on those factors, we want to focus on our quarter-on-quarter growth; we have had 18 consecutive quarters of EBITDA and margin growth. Our Q3 results will be out in mid-November and we are keen to make sure those are positive. 

TowerXchange: You are one of the first non-extractive industry companies to list on the LSE with exposure to frontier markets in SSA, does your market cap at around US$1.5bn reflect fair value? Are investors getting more comfortable with firms exposed to DRC and Tanzania?

We put a range out, and priced at the bottom of that range. There was a lot of share price volatility while Tom (Greenwood, Helios Towers CFO) and I were on the road. But once we went public it was clear we priced well. When a new listing comes into a market, like Helios Towers, there’s a couple of discounts that create a different value from say that which a trade buyer would pay for the outright acquisition of a towerco. There is a control premium which institutions don’t pay because they are only buying into the free-float of 25% and there is a normal IPO discount. So we think our shares are trading at the right place now. 

What is important is that we have gained blue chip, long-term investors. 75% of our equity remains with our old investors and they still support our investment thesis. When a business like ours successfully lists that has operations in Ghana, South Africa, Tanzania, Congo Brazzaville and the DRC it validates the whole continent as a great place to invest. We have a track record of successfully producing top line and EBITDA growth and the market has recognised the way we execute in those markets.

Compared to Africa’s other towercos, you could say we have had a similar journey to Eaton Towers, but I started in 2015 to create something great, and I do not think we’re there yet. I want to add more volume to the business, invest in more towers and the listing provides the resource to do even more. 

I am not sure our IPO has any lessons for IHS Towers, it is a great business too, but you know as much as I do about how and when they will come to market. They have raised US$1.3bn in the bond market recently and I congratulate them on that, it shows a confidence in investing in Africa too.

TowerXchange: What organic growth opportunities are out there for Helios Towers? Which markets besides South Africa could you enter at a small size and scale? 

There are lots of markets looking to liberalise their telecoms sector which Helios Towers could enter. Angola and Ethiopia being two examples. Both have major state owned telecoms companies and many state owned towers. We were at a conference a few months ago in Ethiopia and know of many large African MNOs that are already active there. And in time it could be interesting for towercos. There are over 100mn people in Ethiopia, with only around half the population on 2G or 3G, and just 8,000 towers. South Africa with nearly 60mn people has 30,000 towers, so Ethiopia has a big potential. 

Time will tell on what happens in Ethiopia. But with the capital pressures on MNOs, I believe they will look at towercos to come in and support their capital investment. Any business that operates successfully in Africa has done so through hard graft, such that we can see similarities in a frontier market like Ethiopia. Ethiopia may end up very similar to our journey in DRC or Tanzania. People could have argued with our 2010 entrance into the DRC, but we have been able to expand, grow, profit, and offer an amazing service in DRC. We can leverage that experience elsewhere.

TowerXchange: Turning to South Africa, what comes next for Jeff Schumacher and the team?

We entered South Africa this year at the end of Q1, and we spoke with TowerXchange at the time in your interview with Jeff Schumacher. We entered a joint venture with local fibreco Vulatel, and acquired local towerco SA Towers with their 100 sites, pipeline of work and team of circa 25 employees who really know the market.

We have a plan over the next 3-5 years to become a substantial towerco in South Africa. Only 10% of towers are towerco owned in South Africa. We are deploying significant capex in South Africa, in the rest of our markets we are planning to spend US$100mn in 2019, and in South Africa we will be spending US$30mn. 

We think that with our solution-orientated service we can achieve good growth in the country. From independent research, we think close to 7,000 new points of service will be required in South Africa over the next five years, driven by 4G growth and 4mn new 5G connections, and we want to be part of that. 

TowerXchange: Is there risk of consolidation or wholesale exit in South Africa with Cell C’s weak financial health?

We looked at the MNO market before we entered, it is always a key focus before entering a new market. We look for three or more MNOs in a country. In South Africa there are four large ones, MTN, Vodacom, Telkom and Cell C, but there are also smaller ISPs or 5G specialists. We have seen consolidation in other markets and we do not worry about it too much. 

Cell C has a good customer base, good revenues, solid EBITDA, but they have a debt structure challenge and we wish them luck in resolving that. But if there is consolidation then we will have three strong players and that’s enough for a towerco. When there’s consolidation or a new entrant acquires an existing operator, they tend to come in and invest and expand and that then drives a competitive dynamic that leads to other investments too. So the final outcome could be positive for us.

TowerXchange: How do you anticipate your edge data centre business evolving in the future?

Part of our South African strategy is to develop adjacent technology offerings. South Africa is an incubator for us. We are looking at edge data centres, fibre last-mile connectivity from tower to fibre rings, and also small cell technology. This is our first foray into edge data centres and we are learning and enjoying the potential. We are also running an exploratory small cell roll-out in Ghana. 

Adjacent technology revenue is likely to be 5-10% of total revenue in 5-10 years’ time. It will not become our core business but will still be a large source of revenue. We want to leverage our infrastructure and our power management. Our thesis on edge data centres is that our expertise in managing passive infrastructure will help keep these sites up. We can sell the space but without providing the technology directly, enabling us to focus on our core competences. 

TowerXchange: Power remains a big challenge in Africa, more sites are getting grid connections in Tanzania, but how would you characterise your energy strategy more broadly?

Our primary desire is to use the grid in countries where we operate – but it can be unreliable. Across our markets on average we spend twelve hours a day on grid power. We enjoy that 12 hours and hope that increases, but because of that they have deployed solar on 8% of our sites (and this will increase as cost of solar improves). We have deployed hybrid solutions on even more sites. And ultimately, every one of our close to 7,000 sites has a diesel generator. We run loads of small power stations. So we are not just a property business but a power business too. 

As more reliable technologies come along, we will evaluate and deploy them. Companies like Helios focus on power to create a USP. From back in late 2015, we had a programme of business excellence based on Lean Six Sigma, raising the calibre of our staff and contractors. Four years down the road we are seeing huge benefits. And we are training people effectively. We operate almost entirely with local staff: In Ghana we employ zero expats, and the same in Tanzania, in the DRC we employ two, soon to drop to one and in Congo Brazzaville and South Africa we only employ one expat apiece. So it is Africans on the ground executing locally, to a high standard, which is leading to service improvements. 

TowerXchange: An IPO is an important step for a company, but it is not the end, how would you summarise the trajectory of the company over the next year.

This is our third chapter as a company, after the phases of acquisition and then operational excellence, we are now a mature public company looking to continue our journey. Over the next five years I want to expand into new markets. We have done nine buy and leasebacks so far, and we are looking to do more and enter new markets too. That means tower growth both organically and inorganically. We have US$300mn now to deploy on inorganic growth, and we wouldn’t have generated that if we weren’t serious. These are very exciting times.