It would soon be eight unicorns and counting on the African continent, following the successful listing of leading Africa-focused telecom infrastructure provider, IHS Towers, on the New York Stock Exchange on Thursday (Oct. 14).
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The London-headquartered firm has priced the sale of 18 million ordinary shares at a public offering price of $21.00 per share, and the closing of the offering is expected to occur on Monday (Oct. 18).
According to its regulatory filing, the company is aiming to raise up to $540 million from the initial public offering (IPO) that could value it at about $8 billion, one of the largest ever for an Africa-focused firm.
The towers firm — whose investors include Goldman Sachs, France’s Wendel and South African wireless carrier MTN — was founded in Nigeria in 2011 and is focused on building, leasing and managing mobile telecommunications infrastructure for mobile network operators (MNOs).
The firm is described as one of the world’s largest independent owners of mobile infrastructure, with a base of 365 million mobile subscribers and a portfolio of 30,000-plus towers in nine markets: five in Africa, three in Latin America and one in the Middle East.
Source: IHS filing and TowerXchange
In Africa, tower firms like IHS play a crucial role in the digital economy, as the high cost of operating and managing tower sites — particularly due to widespread power outages across the region — makes it challenging for telecommunication companies (telcos) and MNOs who are keen to reduce their operating costs and debts.
And with the expanding mobile connectivity across the continent, the role of MNOs — and, by extension, tower companies — will grow, allowing telcos to reach more people at a reduced cost.
According to GSMA’s 2021 Mobile Economy Report for Sub-Saharan Africa, transactions on mobile money platforms increased by 23% to reach $490 billion in 2020, a telltale sign of how fast Africa’s digital economy is growing.
The report also estimates that 615 million people, equivalent to 50% of the region’s population, will subscribe to mobile services by 2025, with $155 billion of economic value generated by mobile technologies and services by that same year.
In this piece, PYMNTS takes a closer look inside the telecommunications infrastructure company’s key role in Africa’s digital economy landscape, highlighting five things discovered in the analysis
1. IHS called off IPO plans in 2018.
In 2018, IHS postponed an IPO in the U.S. that would have valued the company at as much as $10 billion, several news outlets, including Bloomberg, reported at the time.
One of the main reasons given for the delay was that the sale might take place too close to an election in its home market of Nigeria, though the elections ended up taking place in February 2019.
The company was one of three Africa-focused telecom infrastructure groups to backtrack on an IPO that year, after Soros-backed Helios Towers and Eaton Towers also abandoned their planned listings. Helios Towers later went on to raise $364 million in a 2019 London IPO
2. MTN, Africa’s mobile giant, is looking to shed its 29% stake in IHS Towers.
As part of efforts to reduce debt through asset sales, the mobile giant had been looking to sell its billion-dollar stake in IHS when it is listed publicly. After missing that chance in 2018, it intends to go through with it this time around.
Back in 2017, MTN exchanged its 51% interest in Nigeria Tower InterCo, the parent company of Nigerian telecom tower operator, INT Towers, for an increased shareholding in IHS Group. As a result of that transaction, in which IHS purchased 8,850 towers from the telecom company, MTN’s interest in the IHG Group increased from 15% to 29% – valued at 30.5 billion rand (about $2.04 billion) as of June this year.
“The transaction represents a significant step in MTN’s longstanding partnership with IHS. It simplifies our ownership structure and diversifies our tower investments across the IHS Group,” Phuthuma Nhleko, then-MTN president and executive chairman, said at the time.
3. Revenue is increasing, losses are shrinking.
Between December 2019 and December 2020, the company realized a 14% year-over-year growth, generating revenue of $1.23 billion and $1.4 billion in 2019 and 2020, respectively. Losses decreased by 24% during that period, from $423 million to $323 million at the end of 2020.
And for the six months that ended June 30, 2021, revenue grew by 15% to $764 million, generating a profit of $77 million, compared to a loss of $353 million during the same period a year prior.
The Nigeria-based tower operator measures revenue in three categories: Organic revenue captures the performance of its existing business; inorganic revenue measures the impact on revenue from existing tenants of new tower portfolios or businesses; and non-core revenue corresponds to the impact of foreign exchange rates’ movements on its business operations.
4. A significant portion of its revenue is derived from a small number of MNOs.
According to IHS’ F-1 filing registered with the Securities and Exchange Commission (SEC) ahead of the IPO, a significant part of its revenue in each of the nine markets where it operates comes from a small number of MNO clients, “who usually constitute some of the largest MNOs in those markets.”
For example, revenue from the firm’s top three MNO customers collectively accounted for over 97% of its consolidated revenue between 2018 and 2020, as well as the six months that ended June 30, 2021. MTN Nigeria and Airtel Nigeria accounted for 55% and 10%, respectively, of its consolidated revenue for the six months ending June 30, 2021.
As the prospectus stated, depending on such a small number of MNOs comes at a risk, and “should there be any negative impact on the businesses of our major customers, including these key MNOs, this, in turn, could adversely affect their demand for tower space and/or the ability to perform their obligations under their lease agreements with us.”
5. IHS has been extending its footprint across Africa, the Middle East and Latin America.
In February 2020, the firm completed two major acquisitions, one for Cell Site Solutions (CSS) in Brazil and a 70% stake in Zain Kuwait’s Telecom Towers Company, as part of its expansion into Latin America and the Middle East.
In January of this year, IHS purchased another 1,005 towers in Brazil as part of the Skysites acquisition and 819 towers in Brazil and Colombia as part of the Centennial acquisition. And a few months later in April, the firm acquired a tower in Rwanda, adding 162 towers and 283 tenants to its growing portfolio.
As of June 2021, the telecom tower company boasts a total of 30,207 towers and 45,487 tenants, at a colocation rate of 1.51x.
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