Vodacom mulls part sale of M-Pesa stake

South Africa’s telecoms operator Vodacom Group is considering selling part of its stake in mobile money platform M-Pesa to unlock value running into billions of shillings from the fast-growing service.

Chief executive Shameel Joosub disclosed the sale plans at an investor briefing on Tuesday in response to an analyst who asked if the company is likely to spin off M-Pesa and whether the multinational is willing to sell a stake to external parties.

M-Pesa is currently offered by Vodacom majority-owned subsidiaries in Tanzania, Mozambique, Lesotho and Democratic Republic of the Congo (DRC). Vodacom also owns an indirect stake in M-Pesa’s business in Kenya through its 35 percent stake in Safaricom

Mr Joosub said the company will consider selling part of its stake in M-Pesa if investors continued to ignore the value of the platform.

“To be honest, we would like the market to give us more credit for our financial services assets and we are not in a position yet where we think the time is optimal to sell or even monetise a portion of the assets because we believe there is still a lot of growth left in M-Pesa,” Mr Joosub said.

“But [it is] certainly something that is in consideration. We have structurally set up in the different markets M-Pesa and financial services into separate entities. So it does give us optionality going forward,” he added in reference to the sale of M-Pesa.

Vodacom Group did not give timelines on the potential sale of the mobile money service, signalling it will hold on to M-Pesa in the short term.

Mr Joosub said that should a decision be made to sell part of M-Pesa, the structure of such a sale will have to be defined.

The options include selling a stake in the platform in specific countries or in M-Pesa Global Services – the new joint venture it runs with Safaricom on a 50/50 basis and which aims to take the service international.

The plans to unlock value from M-Pesa comes after rival Airtel Africa signed deals to sell minority stakes in its continental financial service for huge sums through its subsidiary Airtel Mobile Commerce BV.

“In line with our strategy of unlocking value in our mobile money business, we will soon welcome two new minority investors (The Rise Fund and Mastercard) in agreed transactions which value this part of our business at $2.65 billion (Sh286 billion), as well as bringing $300 million (Sh32.3 billion) into the group,” the multinational said when releasing its annual results last week.

Vodafone Plc, the parent company of Vodacom, signalled that M-Pesa could fetch greater sums should a partial sale of the mobile money platform be implemented.

“We are a clear number one in the African market. We have a base of mobile money of over 60 million in active customers. So we are about three times the size of Airtel,” Vodafone’s chief executive Nick Read said on Tuesday in response to an analyst who asked if the multinational will make similar deals like Airtel.

Vodacom’s financial services, including Kenya, had 57.7 million customers and its total revenue stood at R19.3 billion (Sh148 billion) in the review period, representing a six percent increase from R18.2 billion (Sh139.4 billion) a year earlier.

This was despite loss of R2 billion (Sh15.3 billion) from zero-rating of certain person-to-person cash transfers in most of the markets including Kenya where free transactions lasted between March and December for values of Sh1,000 and below.

Mr Joosub said the telco would prefer that the market recognise the value of the mobile money platform, adding that if not, Vodacom will consider to “at least monetise a portion of these assets going forward.”

Vodacom has a market capitalisation of about Sh1.8 trillion, slightly ahead of Safaricom’s Sh1.5 trillion despite being a much larger firm by revenues and earnings among other measures.

The entry of Mastercard and Rise Fund into Airtel Money’s business indicates investor enthusiasm for Africa’s lucrative and fast-growing financial technology platforms.

Airtel Money generated revenues of $227 million (Sh24.5 billion) from 14 markets including Kenya and Uganda in the year ended March, a 44.5 percent jump from $157 million (Sh16.9 billion) the year before.

This was despite removal of charges on certain transactions in several countries last year as governments worked with telcos and banks to offer financial relief to customers and reduce use of physical cash in the course of the Covid-19 pandemic.

Both Airtel and Vodacom plan to invest heavily in their mobile money platforms which are set to replace the traditional voice business as the growth and profit drivers.

“These are less capital-intensive businesses compared to core mobile so that you gives you a better return on capital profile,” Mr Joosub said.

Airtel says the low uptake of traditional banking services continues to be the main driver of demand for mobile money services.

Airtel Money offers mobile wallet deposit and withdrawals, merchant and commercial payments, benefits transfers, loans and savings, virtual credit card and international money transfers.

The multinational has sought to expand the subscriber base and use of its mobile money platform through partnerships with multiple financial services firms.

It has, for instance, signed agreements with cash remittance companies MoneyGram, Mukuru and WorldRemit.

The telecoms operator also plans to introduce new banking and remittances services in partnership with London-based lender Standard Chartered Plc which has subsidiaries operating in 16 African markets.

Vodacom has similar plans to expand its financial services and has partnered with Alipay, a Chinese mobile and online payment platform that has more than one billion users, to create a new “super-app.”

“Our super-app will offer services ranging from loans and savings, seamless QR and person-to-person payments, to entertainment and personalised shopping experiences, promoting greater financial inclusion,” Mr Joosub said.

“We see this super-app as a precursor to M-Pesa’s evolution, supporting accelerated growth across our financial services’ businesses and assisting us in connecting the next 100 million African customers so that no one is left behind.”