Ghana: Chinese, German banks back VfGh via IFC syndicate
13 July 2011
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Vodafone Ghana (VfGh) secured a $115m (£72m/EUR79m) loan to support network and services investment, in a deal arranged by the International Finance Corporation (IFC), with lead backing from Chinese and German state institutions.
The new capital comes in the form of: an $82m syndicated loan from China Development Bank (CDB), Export-Import Bank of China (Exim Bank), and Deutsche Investitions und Entwicklungsgesellschaft (DEG); and $33m in ‘B loans’ from global group Barclays and African lenders Ecobank, Rand Merchant Bank, and Standard Bank (on whose board Vodafone Group Non-Executive Director Samuel Jonah sits).
It forms part of a larger financing project, through which VfGh received a separate, $100m direct loan from the IFC in 2010/early-January 2011, constituted as a $75m senior loan and $25m subordinated loan, again geared towards expansion of telecoms access.
The deal makes VfGh the second Group OpCo to receive IFC financing — Vodafone Albania secured an $85m loan from the IFC, European Bank for Reconstruction and Development, and Greece’s Alpha Bank, to support 2G network expansion in 2004 (Vodafonewatch, passim).
China participation, competition, development benefits noted
The deal represents the IFC’s first Africa-focused syndicated loan involving Chinese banks, according to the organisation — despite it having already reportedly invested more than $1.2bn in 42 “mobile phone projects” on the continent over the last ten years. The two Chinese banks’ involvement comes with Huawei Technologies having led VfGh’s mobile network modernisation initiatives since the OpCo’s £486m acquisition by Vodafone in August 2008, including receipt of a five-year network management outsourcing contract in December 2010 (Vodafonewatch, 2009.01 and 2011.01).
Vodafone, IFC quiet on financial smallprint
Neither the IFC nor Vodafone provided much detail on conditions and payback obligations attached to the direct and syndicated loans, except to say in associated documentation that the latter represents “long-term financing”. Vodafone’s FY10-11 Annual Report mentions an apparently new “fully drawn facility” of $75m held by VfGh, which matures in March 2018 — but does not make clear whether this is the primary part of the direct IFC loan, or a separate facility altogether.
The loans also appear linked with prominent recent involvement by VfGh in the Group’s wider initiative to tackle health and safety problems in emerging markets (Vodafonewatch, 2009.10, 2010.05, and 2010.09).
“ The key issues associated with the project are: environmental, health, safety, and social management; construction of new telecommunications facilities; labour and working conditions (including occupational health and safety); pollution prevention and abatement; and community engagement…As a condition of IFC’s investment, Vodafone Ghana will commit to an action plan for ensuring that all relevant social and environmental risks and impacts are managed as appropriate. ”
– IFC.
“Considerable” opportunity for IFC support at other Vodafone OpCos
Regarding how VfGh will spend the money, the IFC said the financing will “help [VfGh] enhance its telecommunications network, and spread the benefits of mobile phone and broadband services in Ghana, especially in rural areas”, as well as helping to stimulate competition. It also aims to encourage value-added service “innovation” — an area where VfGh has so far been overshadowed by sister OpCos Safaricom and Vodacom Group.
For Vodafone, both loans presumably represent an opportunity to fund the multi-year turnaround investment programme VfGh has been conducting since the 2008 acquisition (Vodafonewatch, 2008.07 and passim), while adhering to the Group’s recent, more disciplined approach to capital outlay. The IFC also highlighted its role in helping VfGh raise borrowing in a “challenging international capital market”, and, intriguingly, claimed there to be “considerable scope for further IFC assistance, particularly in IDA [International Development Association] countries, which Vodafone is now targeting”.
VfGh’s need for funds “urgent“ – IFC
One interesting side note in media coverage of the loan was a comment by an IFC spokesperson to Reuters, which appeared to suggest VfGh is in pressing need of funds. “The money should flow shortly because Vodafone do need the money quite urgently with regards to expanding their network. In a couple of weeks, I’d say they’d have the money”, said Mary-Jean Moyo, an IFC official, in mid-June 2011.
Vodafone has said little to indicate that VfGh is financially stretched, but there is a sense that the Group’s strategy in Ghana was given a major reboot in 2009, following the economic downturn, and that the IFC financing forms part of related efforts to get a grip on Vodafone’s own capital outlay and exposure in the country. Vodafone wrote down the OpCo’s goodwill by £250m at the end of FY08-09 (April 2008-March 2009), shortly after reaffirming its relationship with Huawei in Ghana (and elsewhere), during a visit by Chinese Premier Wen Jiabao to the UK (Vodafonewatch, 2009.02).
While the source of the $75m facility noted in the Annual Report is unclear, it is one of a number held by Group OpCos that cushion Vodafone’s exposure, being “non-recourse to any member of the Group other than the borrower” due to the “level of country risk involved”.
Vodafone does not provide full details on VfGh’s financial performance in its results statements, but the statistics it does publish offer (albeit limited) signs of progress: VfGh’s ‘organic’ FY10-11 service revenue growth was +21%, supported by “competitive tariffs and improved brand awareness”; customer numbers grew by 8%, to 3.04 million, during the year; and Vodafone claims VfGh’s ‘revenue market share’ increased from 12.3% to 15.0% between Q3 FY09-10 and Q3 FY10-11 (Vodafonewatch, #91).
However, the Group has not yet updated on the capital expenditure associated with VfGh’s modernisation programme, or the OpCo’s profitability.
[Further reference: IFC projects website; Vodafone Ghana secures $115mln loan -- Reuters, 13 June 2011; IFC leads $115m financing for Vodafone Ghana, helping expand telecoms services -- IFC, 13 June 2011.]
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