New buyers for Airtel Tanzania towers

Airtel Africa has finally sold its towers in Tanzania. The East African country will be getting its second towerco after a joint venture between SBA Communications and Paradigm Infrastructure inked a deal to acquire the 1,400 sites for US$175mn. SBA Communications is one of the leading towercos of the Americas and Tanzania will be its 15^th market globally and second in Africa. Paradigm Infrastructure are a new towerco backed by ex-ATC EMEA executives and this is their first deal. TowerXchange is seeking comment from both parties, but for now here is what we can tell you about the deal.

 SBA Communications announced its plan to enter its second African market on June 2, through a Joint Venture with ex-ATC-backed towerco Paradigm Infrastructure. SBA Communications is the majority partner in the deal to acquire 1,400 towers for US$175mn.

As reported by Raymond James analysts Ric Prentiss and Brent Penter “The deal consists of 1,400 existing towers plus an undisclosed amount of Build To Suit (BTS) towers over five years for a purchase price of US$175mn. The assets are expected to produce US$18mn in Adj. EBITDA during the first full year of operations, for an implied EV/EBITDA multiple of ~9.7x compared to our 16x value for [SBA Communication’s sites in South Africa]…The deal is expected to close in tranches beginning in 4Q21, with the expected payment for the majority of assets for US$157.5mn upon the first closing date, subject to a number of customary conditions including the issuance of a Tanzania tower company license to the JV.”

Because the Tanzanian government took a 49% stake in Airtel Africa to resolve a legal dispute previously, the recent death of Tanzanian President John Magufuli and his replacement by Samia Suluhu Hassan delayed the deal as government consent to the deal was required. As part of the deal, US$60mn from the proceeds will be used to invest in Airtel’s network and sales infrastructure in Tanzania and for distribution to the government of Tanzania, as per a pre-agreed settlement. The rest will be used to reduce group debt.

US$157.5mn is payable on the first closing date which is expected to be by year’s end. The balance will be payable in installments upon the completion of the transfer of any remaining towers.

The transaction should be the last divestment for Airtel Africa as it transitions to an asset-light business model better able to drive increases in its customer base for voice, data, mobile money and digital services.

Between 2014 and 2016 Airtel disposed of its towers in 10 of its markets (Airtel has since exited Burkina Faso and Ghana), but deals in Chad, Gabon, Tanzania and Malawi were all ultimately cancelled due to regulatory issues. Madagascar never came to market, but speculation at the time pointed to pessimism that the regulator would give a deal the red flag. Following agreements with Helios Towers covering Chad, Gabon, Malawi, Madagascar and now this deal in Tanzania, Airtel Africa is months away from being rid of its tower assets.

In 2019 Airtel Africa went public with listings on the London and Nigerian stock exchanges. Since then the company has enjoyed double digit growth driven by Africa’s remarkable resilience during 2020 and 2021 and the continent’s strong macro fundamentals. 2020 saw Airtel add 1,800 sites, growing from 21,059 to 22,909 sites, the vast majority of these were tenancies with American Tower, IHS Towers and Helios Towers. Airtel Africa will now add SBA Communications and Paradigm Infrastructure to its list of key infrastructure providers.

Many things make Tanzania an attractive tower market. The tenancy ratio on the Airtel sites is already a little under 1.5x including Airtel Tanzania as the anchor tenant. There is room to grow in Tanzania, because unlike some other African markets, you have four healthy MNOs as potential tenants. Vodacom are market leaders with 30.2% market share, Axian Group follow with 27.6% having acquired Zantel and Tigo in April 2021, Airtel follow with 26.1%, and Halotel have 14% (TCRA, March 2021).

Raymond James’s analyst notes highlights an unspecified BTS commitment in the deal, and Tanzania certainly needs new sites. Tanzania is one of Africa’s markets with the highest number of SIMs per tower, with 6,615 SIMs active for each tower implying substantial unserved demand for additional passive infrastructure (for reference the world average is 1,373 SIMs per tower). As Africa evolves from 2G and 3G wireless networks to 4G and 5G this demand for new sites will increase, especially given Airtel’s well publicised desire to expand its 4G presence across its markets.

The move significantly changes the tower market in Tanzania introducing a new towerco to the market which had long been served solely by Helios Towers. Helios Towers owns 3,821 of Tanzania’s estimated 7,208 towers and enjoys a 2.3x tenancy ratio, again indicating the potential for upside in the market. In their annual report Helios Towers reports that “Tanzania has experienced strong mobile subscription CAGR of 8% from 2012-2020, with an expected further 5% CAGR from 2020 to 2026. As a result, independent forecasts expect points of service to grow 6% annually from 2020-2026.”

There are some future acquisition opportunities in Tanzania, but they are not extensive. Prior to their acquisition by Axian Group Tigo and Zantel had sold their sites to Helios Towers, but some sites remain with the group. At one stage Viettel were reviewing their tower strategy across Africa, but it appears like that process has not led to them monetising their sites. In any case, Viettel largely relied on guyed masks for its network development and as such its sites are less appropriate for lease-up because they are lower capacity.

The operational environment is also better in Tanzania than other African markets. Helios Towers have built a quality supply chain that any new entrant will be able to tap into. The government has also been investing in grid expansion and Helios Towers have reported a material effect on their operating costs and availability from the expansion of grid connections for towers across the country.

In April TowerXchange listed Paradigm infrastructure as one to watch, and now you can see why. Paradigm Infrastructure was founded by ex-American Tower stalwarts Steve Harris, Steven Marshall and Hal Hess. TowerXchange expects to see Paradigm Infrastructure enter other markets as well as establishing itself in Tanzania. The JV was unexpected but offers both towercos something “ for SBA Communications they have a partner that knows Africa and can help them establish themselves in their second African market. For Paradigm Infrastructure, SBA Communications offers them a quality partner with deep pockets and a wealth of operating experience.

American Tower’s acquisition of Eaton Towers appears to have been a high-water mark for consolidation in Africa. With the expansion of SBA Communications out of South Africa and the entrance of Paradigm Infrastructure there is now new competition in the market. The imminent launch of ex-Eaton staffed Eastcastle Infrastructure in West Africa will add another new towerco to a mix which already includes rural specialist Africa Mobile Networks. Watch this space.