SAFARICOM GOES DIRECTLY TO LENDERS FOR A RECORD US$108M SYNDICATED LOAN

Mergers, Acquisitions and Financial Results

Safaricom is seeking to raise a record Ksh8 billion (US$108.1 million) from the financial market. This will be the single largest such loan in the history of Kenya's capital markets. The largest syndicated loan raised to date was Celtel's Ksh6.6 billion last year. The loan will supplement internal cashflow in financing the ongoing network upgrade and expansion project.

The company is understood to have resorted to a syndicated loan because of restrictions on borrowing from the capital markets placed by the terms of a Ksh4 billion ($54.1 million) bond that the company floated on the Nairobi Stock Exchange.

Under these terms the company cannot declare dividends to its shareholders or issue a competing bond until the present five-year instrument matures in 2008. Safaricom chief executive Michael Joseph had told investors while presenting the company's financial results for the year to March 2005 that the company would review its borrowing options.

The decision to go for a syndicated loan, to be arranged by a leading multinational bank in Kenya, has caught capital market players by surprise, as they all expected the company to float a new bond.

The restrictive terms of the present bond were arrived at to address investor concerns over the company's future, which appears to be secured on the company's expansion to a subscriber base of 3 million in September, annual revenue of Ksh28 billion ($378.4 million) and a net profit of Ksh5.9 billion (US$79.7 million) last year .

The company's new financial muscle has convinced the management that it can leverage these credentials to attract commercial financing at special rates virtually at par with the prevailing Treasury bill rate which stood at 8.7 per cent at the last auction.

That would make a syndicated loan more appealing than a bond which is offered at a premium above the cost of government paper. "With fairly stable interest rates now, a syndicated loan offers a cheaper option because it is negotiable," a market analyst with a leading investment bank said.

Safaricom's standing in the financial market is strengthened by a growing balance sheet that saw total borrowing fall from Ksh11.8 billion ($159.5 million) to Ksh9.2 billion (US$124.3 million) in the past financial year. Non current borrowing also fell from Ksh9.5 billion (US$128.4 million) to Ksh6.8 billion (US$91.9 million).

Joseph told The EastAfrican that he was "unable to comment at this moment" on the financing arrangement, which is reliably understood to be at an advanced stage and could be unveiled by year end. Safaricom's chief finance officer, Les Bailie, was said to be out of the country.

The financing is expected to fund part of the Ksh14.7 billion (US$198.6 million) system upgrade, which so far been relying on sales revenue. "To finance this expansion, the company has continued to reinvest all internally generated cash," stated the company's audited accounts for the year 2004/5.

Safaricom will have injected Ksh53 billion (US$716 million) into the network by March next year, marking a hectic period since its relaunch in 2000.

The investment has seen about 200 trading centres connected to the network and made Safaricom the fastest growing associate company within the Vodafone Group of UK.

Joseph has attributed the growth to a new Intelligence Network platform that supports a range of new products and services, including the sambaza airtime transfer service, and focus on rural presence.

Safaricom has been Kenya's second biggest taxpayer for the past two years, after East African Breweries Ltd.

The two also rate as Kenya's most profitable companies, going by the last audited accounts which showed the brewer at Ksh8.6 billion (US$116.2 million) and the cellular phone operator at Ksh8.4 billion (US$113.5 million) in pre-tax profits.

Safaricom's competitor Celtel is also courting the capital markets for a Ksh4.5 billion bond ($60.8 million), just a year after the Ksh6.5 billion (US$87.8 million) syndicated loan was arranged for it by local banks (Stanbic, Barclays and KCB) and mutual funds.

Kenya's third mobile operator, Econet Wireless, aims to raise US$500 million by listing part of the company in London in May, with the proceeds expected be expected be used to roll out a Kenyan operation that has been beset by disputes among partners and with industry regulators.

The East African