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The East African : March 31st 2014
The EastAfrican BUSINESS MARCH 29 - APRIL 4, 2014 SEEKING MINORITY INVESTOR No easy exit for Orange from Uganda The company is about $200 million in debt and has a fai≥ly thin asset base By BERNARD BUSUULWA Special Correspondent A fter the apparent failure to secure an outright sale for its Ugandan operation, Orange Group has shifted focus to finding a minority investor as it seeks to reduce exposure to an increasingly difficult market. Sources at Orange Uganda said the substantial debt on the firm’s balance sheet and infighting between Orange Group and a local minority shareholder over terms of a previous debt transaction have hindered the company’s pursuit for a buyer. Faced with about $200 million in debt and a fairly thin asset base, the telecommunications operator’s underlying financial value is perceived as too small to justify the offer prices made to investors. In 2012, Orange sold 180 transmission masts to Eaton Towers Ltd, leaving the company with few core technical infrastructure units. Under the new strategy, Orange is seeking a new minority investor to inject more than $41 million into network projects. The commercial option is expected to reduce recapitalisation pressures and raise the company’s capacity to satisfy changing consumer needs. Though this strategy allows the firm to buy time before exiting, the inability to secure a big buyer could put more pressure on the French owners to discount their offer. Though the firm has been in the Ugandan market for five years, its key performance indicators remain weak. The company is yet to reap profits with net losses averaging between Ush50 billion ($19.6 million) and Ush70 billion ($27.5 million) per year since 2009, according in b≥ief EAC states develop SGR construction guidelines Regional governments have come up with a set of guidelines for new railway lines. The proposed draft protocol for the standard gauge railway (SGR) is expected to harmonise all matters relating to new railroad projects in the region. These include policy, legal and institutional frameworks, technical standards, monitoring and evaluation, research and development and communications. The guidelines call for a joint approach in project management, human resource capacity building, mobilising money and internal budgeting and funding mechanisms. EU gives $17 million to promote culture industry Orange Uganda sales representatives in Kampala. Picture: File to insiders at Ernest and Young, the firm’s auditors. In addition, its market share is valued at less than 20 per cent — a figure deemed too small for big investors. In spite of highly popular Internet and data products, Orange’s ability to grow TOUGH MARKET Orange Group appointed Lazard, a financial services firm, at the beginning of March, to find a buyer for its Ugandan subsidiary. Orange Group’s operations in the Democratic Republic of Congo and Niger, have also been targeted for sale. Uganda’s mobile market is dominated by MTN and Bharti Airtel. The latter acquired the third largest operator Warid Telecom for around $100m from the Abu Dhabi Group in May 2013. MTN has around 8.5 million subscribers in Uganda, while post-merger, Airtel has over 7.2 million revenues appears weak. Efforts to obtain details from Or- ange Uganda on the search for investors proved fruitless by the time of going to press. Philippe Luxcey, the company’s chief executive officer, declined to comment when contacted by The EastAfrican on Thursday. Sources in Nairobi indicate that Orange’s Kenyan subsidiary has shortlisted a number of investors and given them time to carry out due diligence on the business and make offers. “A large Asian telecoms operator wants to acquire a Kenyan GSM operator,” said a Kenyan source. Telecommunications analysts say Orange Uganda’s customer base is not attractive to older rivals. There are a large number of dou- ble sim card customers on the Orange network who want high speed Internet and data packages, and mobile money services offered by its competitors. This has left the operator with many low- spending subscribers who spend more on rival products and services. $200m Orange Uganda’s current debt burden that has deterred potential investors A limited upcountry network has also played into its rivals’ hands, analysts say. Orange Uganda’s total subscriber base is estimated at one million, compared with Airtel’s 7.2 million subscribers and Uganda Telecom Ltd’s two million subscribers as of 2012, industry sources indicate. “Further investments in Internet and data products by Airtel and MTN Uganda have partly diluted Orange’s primary niche in the market. A combined regional wide or pan African acquisition deal that offers big players like MTN opportunity to enter elusive markets like Kenya would appear more attractive than single territory deals,” said a commercial analyst at Airtel Uganda who requested anonymity. Additional reporting by Peterson Thiong’o Low inflation leads to inte≥est ≥ates fall in Rwanda By BERNA NAMATA The EastAfrican RWANDAN BORROWERS are likely to benefit from reduced lending rates in coming months, as commercial banks diversify their sources of deposits. With low inflation and increased liquidity in the market as government resumes spending, banks could lower their lending rates. Rwandan commercial banks currently have higher deposits after aggressively launching branchless or agency banking, and expanding their branch networks to rural areas. The banks are benefiting from reduced gov- ernment borrowing from the domestic market, as shown by falling interest rates on Treasury bills to between 5.1 per cent for one-month instruments and 6.5 per cent for maturities of one year, from 12 per cent in April last year. Recent statistics show that lending rates by commercial banks have remained almost unchanged at 16.83 per cent as of March this year, in comparison to 16.9 per cent in December 2013. Deposit rates dropped significantly from an average of 11.6 per cent in June last year, to 8.58 per cent in March this year. John Rwangombwa, the governor of National Bank of Rwanda (BNR), says lending rates are likely to come down from April as banks now have access to relatively cheaper deposits. “When you look at the deposit rates, the big- gest financing source for the banks has gone down — there is a drop in their cost of financing. Last year they were borrowing expensively to finance their lending — this has gone down,” Mr Rwangombwa told The EastAfrican. On Tuesday, the central bank kept its repo rate (lending rate) unchanged at seven per cent since June 2012. Mr Rwangombwa said the delayed impact of changes in the central bank’s policy, in particular on lending rates, is because banks had a big stock of expensive deposits in their financing. Credit to the private sector is expected to expand to 15.8 per cent this year, from 12.9 per cent in 2013. Rwanda’s inflation rate was at 3.45 per cent in February. “There is a general expectation that the lend- ing rates will come down because of the prevailing macro-economic stability. There has been marginal depreciation of the Rwandan franc, a rebound in economic activity and there are signals that inflation will be kept under control,” said Toroitich Maurice, the managing Director of Kenya Commercial Bank Rwanda. He said his bank plans to revise lending rates downwards from next month. “Generally, the deposit rates are under 10 per cent — we should see the effect in the second half of the year.” Kenya, Uganda get large share of Tullow business The EU has given $17million to support the African, Caribbean and the Pacific countries to promote the culture industry. The funds are provided under the European Development Fund (EDF), which is its main instrument for providing community development aid to ACP countries to fight poverty. The ACP Cultures and Support Programme Secretariat, an initiative of the EU, will implement the project. 47 A Tullow oil rig in Turkana Kenya. Picture: File Kenya and Uganda bagged $75 million out of $217 million that Tullow Oil spent to procure goods and services from local suppliers for its operations. Tullow’s annual report shows the taxes, royalties, licence fees and other public revenues generated by the company’s operations. According to the report, spending on local content rose in 2013 in line with increased operations in Ghana, Kenya, Mauritania and Ethiopia. NTBs limit benefits of regional business - report Kenya has failed to build its reputation as a business services provider in the region, limiting the benefits its firms could get from closer integration, a new report says. The report, Strengthening coherence of Kenya’s participation in regional integration indicates that Kenya has not reaped fully from integration due to prevalence of non-tariff barriers and a weak institutional framework. “Kenya should therefore focus on strengthening commercial diplomacy,” states the report.
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