Telkom to use R6.75bn Swiftnet cash to cut debt and invest further

Telkom store at N1 City in Goodwood, Cape Town. Picture: Ian Landsberg/Independent Newspapers

Telkom store at N1 City in Goodwood, Cape Town. Picture: Ian Landsberg/Independent Newspapers

Published Mar 25, 2024


TELKOM SA has sold its masts and towers business Swiftnet to a consortium that includes global private equity investor Actis and Royal Bafokeng Holdings for R6.75 billion.

“Swiftnet is a strategic acquisition for Actis that will see it acquire over 4 000 sites across the country. The platform is underpinned by a strong relationship with Telkom and other existing anchor tenants, and long-term contractual revenue,” Actis directors said on Friday. Actis is in the process of being acquired by US global growth equity investor General Atlantic.

Swiftnet’s taxed profit for the 12 months to March 31, 2023, was R584 million, while for the six months to September 30 it was R321m.

ICT, media and telecoms analyst Arthur Goldstuck said it was a good deal in the tight global investment environment.

He said Telkom was increasingly focused on its digital businesses, and the physical assets such as Swiftnet’s towers tended be to a “burden on the balance sheet”.

He said the deal also benefited Actis, as it is a global aggregator of tower assets and has the scale to be globally competitive in that sector. “It is a win-win for both parties,” he said.

Mergence Investment Managers Head of Equity Peter Takaendesa said given the failure of many investment deals in the current environment, Telkom did well to get the Swiftnet transaction “over the line”.

He said the only negative thing was that shareholders would not likely see any of the proceeds, but the funds would provide a “breather” for Telkom, which had seen its debt rise due to investments not yet translating into growth in its business. Telkom’s debt stood at more than R16bn at the end of its 2023 financial year.

Actis directors said the investment builds on their aim to create a leading independent tower company, and Swiftnet would become part of their existing digital infrastructure portfolio in South Africa - Actis invested in fibre network operator Octotel in 2020.

The transaction is Actis’s second towers investment this year following the recent acquisition of a portfolio in the western Balkans, comprising about 1 800 macro towers in Serbia, Bosnia and Herzegovina, and Montenegro.

“The deal allows Actis to invest in a growing sector, with strong secular tailwinds and an increasing need for tower densification, driven by increasing internet penetration and the transitions from 3G and 4G to 5G,” the company said.

Royal Bafokeng Holdings is the BEE partner.

Telkom said the disposal was in line with its value-unlock strategy, which included the sale of non-core assets.

It said the purchase price put an enterprise value of R6.75bn on Swiftnet. Proceeds would be used to pay down debt, strengthening Telkom's balance sheet and enabling it to release free cash flow for investment in its core businesses and for growth opportunities.

Telkom’s board had previously said its market capitalisation did not represent its intrinsic value, and all strategic options to unlock value would be explored.

“Telkom has ambitious growth plans across its business units, particularly for Openserve - South Africa's leading wholesale infrastructure connectivity provider with the largest open-access network across South Africa,” the company said.

There were also growth plans for Telkom Consumer - South Africa's largest fixed broadband provider measured by network deployed, an internet service provider and, together with its mobile network, a converged communications provider.

Actis has invested $1.4bn (R26bn) in South Africa over the past two decades. Royal Bafokeng Holdings is a long-term investor that acquires significant stakes in high growth, defensive sectors and high-quality companies with established track records.