SA Competition Commission greenlights Telkom's $363M Swiftnet sale

South Africa's Competition Commission (CompCom) has approved the sale of Telkom South Africa's masts and towers subsidiary Swiftnet to a consortium of equity investors called Towerco, for R6.75 billion (US$363.5 million).

The CompCom has recommended that SA's Competition Tribunal approve the proposed transaction, with conditions.

"The Commission is of the view that the proposed transaction is unlikely to substantially lessen or prevent competition in any market," it said in a statement.

However, to address public interest concerns, "the merger parties have made procurement commitments to firms that are either small/medium enterprises or that are owned by historically disadvantaged persons (HDPs) for a period of five years from the merger implementation date," the CompCom said.

Telkom SA confirmed the CompCom's decision as part of a trading update for the first quarter ended June 30, 2024, published today (August 5), and said the proposed transaction will now be referred to the Tribunal for its decision.

TowerCo was established for the purposes of this transaction and is jointly controlled by the Actis Ohio Fund, which is owned by Actis LLP, and Royal Bafokeng Infrastructure Investments, which is controlled by Royal Bafokeng Holdings.

Actis is a global investor across energy infrastructure, long life infrastructure, digital infrastructure, real estate and private equity. In South Africa, Actis Group is invested in the food retail, education, fiber and Internet services sectors.

Royal Bafokeng Holdings is primarily an investment holding company with minority interests held in various investments across areas like infrastructure, property, financial services, telecom, pharmaceuticals, resources and industrial sectors.

Swiftnet is wholly owned and controlled by Telkom SA, which is partly owned by the South African government and also listed on the Johannesburg Stock Exchange (JSE).

History of the deal

In March 2024, Telkom said it had sold Swiftnet to Towerco but the deal was subject to shareholder and regulatory approvals. At the time, it said Actis would own a 70% stake in the new entity, with Royal Bafokeng Holdings holding the remaining 30%.

"This decision marks a pivotal moment in Telkom's journey towards unlocking shareholder value and streamlining our focus on core business operations," Telkom Group CEO Serame Taukobong said back in March.

"This divestiture aligns perfectly with our strategy to concentrate on our infrastructure assets while realizing the inherent value in non-core holdings," he added.

Telkom has been planning the sale for some time. In November 2023, it confirmed it had entered into exclusive negotiations with "a preferred bidder" for the potential disposal of Swiftnet and considered the asset as "held for sale" by the group.

In February 2024, it said the deal had reached an advanced stage and it was moving forward with the sale.

In May 2024, Telkom's shareholders voted in favor of the deal.

Telkom previously said Swiftnet is one of the largest owners and operators of masts and towers infrastructure in South Africa, having approximately 4,000 installations and leasing collocation space to major mobile network operators.

The CompCom confirmed that Swiftnet's core business includes leasing space on its owned mast and tower related infrastructure to customers, including mobile network operators.

"Swiftnet also provides wireless in-building solutions, which allow its customers to provide mobile network connectivity within shopping centers, buildings and other public infrastructure and offices in approximately 28 locations across the country," the Commission added.

Telkom said that Swiftnet's revenue during the first quarter of the 2024 financial year had increased by 5.2% year-on-year to R343 million ($18.5 million), with revenue from growing customers increasing by 14.5% to R285 million ($15.4 million) "underpinned by inflationary escalations, new tenancies, 5G expansion, antennae upgrades as well as new tower builds and IBS, reflecting our customers' focus on network improvement and modernization."

Telkom Group CEO Serame Taukobong. (Source: Telkom Group)

In September 2021, Telkom decided to spin out Swiftnet and had plans of a separate listing on the JSE. But in 2023, it shifted the plan to sell the business instead.

Other local operators like Cell C have also sold their tower assets in favor of roaming on partner networks or leasing back services from tower companies as a way to spend less on infrastructure.

In November 2021, MTN said it would sell over 5,700 towers in South Africa to IHS Towers for $413 million after receiving over 20 expressions of interest to buy its passive tower infrastructure in SA.

Similar deals to sell and lease back tower infrastructure have been done by Airtel in Madagascar and Malawi.

— Paula Gilbert, Editor, Connecting Africa