Deal: Acquisition of KenCell Communication by Celtel
Finance: $70 million bridge loan and $230 million bank guarantee
Arranger: ING Bank
Date: May 26 2004
Pan-African mobile phone company Celtel International has closed one of the largest corporate deals ever seen in east Africa, paving the way for a local bond issue in the autumn.
At the end of May, Netherlands-based Celtel, formerly known as MSI Cellular, announced that it had paid $250 million for a 60% stake in Kenyan mobile service provider KenCell Communication.
ING Bank arranged a $70 million bridge loan and provided a $230 million guarantee.
The deal was complicated. Celtel did not buy its KenCell shares directly but from one of the Sameer Group of companies that invest in the agriculture, banking, infrastructure and IT sectors throughout east Africa.
Sameer Group?s managing director, Naushad Merali, is one of Kenya?s richest entrepreneurs. According to an interview in The East African Standard, he controls companies with over KSh20 billion ($253 million) in assets.
Celtel couldn?t buy its shares directly because, as a minority shareholder, Sameer Group had pre-emptive rights. Sameer Group owned (and still owns) 40% of KenCell. The previous majority shareholder was Vivendi Telecom International.
In 2002, Vivendi announced that it was rationalizing its non-French telecoms activities. One of the countries it would pull out of was Kenya. After a deal with South African cellular network operator MTN fell through, Celtel entered the frame.
?There was a unique opportunity for this transaction when Sameer Group became aware that it would have an opportunity to take Vivendi?s stake,? says Stefan Verhoeven, vice-president, telecom finance at ING. ?It was aware of Celtel?s other assets and its regional focus in East Africa.?
For Celtel to take control of KenCell, Sameer Group would have to purchase Vivendi?s 60% stake and then sell it to Celtel. ?The major challenge was the fact that at the outset there was some uncertainty about what a final deal would look like,? says Verhoeven. ?We had to establish whether Sameer Group would exercise its pre-emptive rights and whether Celtel could negotiate a meaningful deal, and the timetable was very tight.?
Vivendi Telecom International made the sale conditional on ING guaranteeing the purchase price. With the guarantee in place, Sameer Group could purchase Vivendi?s shares and sell them to Celtel Kenya.
?This wasn?t a straightforward acquisition,? says Corinna Mitchel, a partner at Baker & McKenzie in London and ING?s legal adviser. ?The ultimate purchaser bought the shares from a company that was simultaneously buying shares in the target, pursuant to pre-emptive rights and subject to a suitable bank guarantee. It was quite fun in a masochistic kind of way.?
Celtel is now looking at taking out its short-term financing, with the possibility of raising $100 million to $150 million within the next three to four months, either through a bond or through a combination of a bond and a syndicated loan facility.
?There is a lot of liquidity in Kenya,? says Julian Rennie of Standard Bank London. ?Local investors have an abundance of Kenyan shillings and have been looking for somewhere to put them.? At the time of writing, no banks had been mandated for the deal. But it is attracting interest from banks with a strong African presence. Standard Bank London had put in a proposal to Celtel.
Standard Bank London and ING both have strong relationships with Celtel. They teamed up in March 2003 to arrange a $109 million, six-year syndicated loan for the company to help fund its sub-Saharan expansion.
With about 1.2 million customers, KenCell is a valuable target in itself. But Kenya is an important country for those mobile phone operators looking to build truly pan-African operations.
So Celtel has been looking for a way into the Kenyan market for some time. It is already one of the largest mobile service providers in Africa, with operations in 12 other countries.
?This deal isn?t just an acquisition,? says Therese Brouwer, ING?s sector head, wireless telecom finance. ?For Celtel, it closes the loop. KenCell is a key asset in its pan-African network.?
Kenya?s status as a popular holiday destination might also encourage investment. ?The perceived risk of Kenya is often lower than that of surrounding countries,? says Brouwer.
Celtel has already contributed to the development of local capital markets on the other side of the continent. In September 2003, Celtel Burkina Faso issued a CFAFr3 billion ($5.25 million), six-year bond with a 7.15% coupon.
In 2002, Kencell?s main rival, Safaricom, issued a $50 million local currency bond arranged by Citibank Kenya.