Ethiopia: Ethio Telecom Hires Business Valuator

"We couldn't fully achieve our plan due to the crisis in the northern part of the country," said Frehiwot.

Ethio telecom, the lone telecom operator, hired KPMG East Africa to conduct its business valuation. Kicked off earlier this month, determining the market value of the entire businesses of the company is expected to take eight weeks.

The company's management hired KPMG by a single sourcing procurement method through negotiations. The latest contract is an extension of the project KPMG was awarded last year to conduct an asset valuation of the company for the first time at International Financial Reporting Standards (IFRS) adoption. KPMG East Africa was paid close to one million dollars for the contract it delivered a few months ago.

Ethio telecom's management requested KPMG to deliver its valuation methodology, which is expected to cover book-to-floor inventory.

KPMG, which will be paid close to 611,785 dollars for the service, is also expected to propose the years the enterprise valuation will cover. Before kicking off the process, the executives of the telecom operator need to approve the methodology.

"We chose KPMG as it already worked on the asset valuation," said Frehiwot Tamiru, CEO of Ethio telecom. "It's the advantage of having ample and basic information about the company."

KPMG's representatives declined to comment on the matter.

The company's asset valuation conducted by KPMG showed that the economic value of Ethio telecom's resources has appreciated by 42pc. Ethio telecom is one of the state-owned companies that will be partially privatised. Retaining 55pc of the shares, the government will avail 40pc and five percent of its stake to a foreign company and local buyers, respectively.

For the partial privatisation process, the Ministry of Finance hired Deloitte Consulting as a transaction advisor seven months ago. Along with undertaking legal due diligence and recommending a feasible mode of privatisation, Deloitte will review the initial asset valuation and conduct a five-year enterprise valuation of the telecom giant.

"Our business valuation will help us triangulate the value with the one to be conducted by Deloitte," Frehiwot told Fortune. "It'll also help us to have an internationally accepted valuation that shows the company's economic value."

The Ministry and the Ethiopian Communications Authority have started the process of issuing licenses to two new telecom operators. The Authority issued a request for proposals in December and targets to issue the licenses in March.

Ethio telecom is also a steering committee member of the telecom privatisation process, which is led by the Public Enterprises Holding & Administration Agency with the assistance of the Ministry of Finance.

For the process Deloitte is conducting, Ethio telecom has already delivered the necessary documents, according to Frehiwot.

KPMG's business valuation will also consider the new business areas that Ethio telecom is set to engage in soon including infrastructure sharing to the two companies expected to join the sector. A new regulation also allows the company to engage in mobile money. Approved two weeks ago by the Council of Ministers, the company's new establishment regulations enabled Ethio telecom to engage with mobile money and digital financial services and raised its authorised capital to 400 billion Br, a huge hike from the previous 40 billion Br. It also allowed the company to form an entity and make equity investments locally and internationally.

"This will completely change the business value of the company," said the CEO of Ethio telecom, which serviced 126.1 million dollars of its debt in the past half year.

Over the first half of this fiscal year, its revenues rose by 12.3pc to 25.6 billion Br, achieving 95pc of its target. It also generated 80.2 million dollars in foreign currency. During the reporting period, the company has paid 16.2 billion Br in taxes, of which 7.7 billion Br was profit tax. The company has also reported that it paid half a billion Birr in dividends.

"We couldn't fully achieve our plan due to the crisis in the northern part of the country," said Frehiwot.

Following the breakout of an armed conflict in Tigray Regional State, telecommunication services were fully cut off since early November. However, services have partially resumed in some parts of the Regional State over the past couple of weeks.

The total number of telecom users has also reached 50.7 million, recording an 11.2pc growth compared with the figure at the beginning of the current fiscal year. Out of the total user base, 49.8 million are mobile users, while 23.5 million and 309,400 were mobile data users and broadband internet users, respectively. Smartphone penetration has also reached 43.7pc.

More From: Addis Fortune

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