Innovation

Mastercard to Buy Stake in MTN’s $5.2 Billion Fintech Unit

By Bloomberg

Mastercard Inc. agreed to take a minority stake in the financial-technology business of MTN Group Ltd., Africa’s biggest wireless carrier, sending the telecom company’s stock up the most in three months. 

The size of Mastercard’s stake won’t be disclosed until the transaction closes, but MTN said Monday that the deal values the entire fintech unit at $5.2 billion. Chief Executive Officer Ralph Mupita said on an investor call Monday the stake “will go up to a maximum of 30%, but obviously only if that makes sense.”

The announcement comes as Africa’s young, tech-savvy population are increasingly using their mobile phones to bridge gaps in services including banking. That’s opened a lucrative and fast-growing space in the fintech sector for wireless carriers. Much of the investment to date has been in mobile-payment systems, with a wave of fast-growing startups such as Flutterwave Inc. and Interswitch Ltd. emerging.

MTN shares closed 4.9% higher at 135.86 rand in Johannesburg, the most since May 12. The valuation is strong given the fund-raising difficulties many technology startups are facing and the fact that Mastercard won’t receive a controlling stake, according to Peter Takaendesa, the head of equities at Mergence Investment Managers in Cape Town. 

What Bloomberg Intelligence Says:

Mastercard’s planned minority investment in MTN mobile money, at an EV of $5.2 billion, equates to 16x trailing Ebitda — well above Airtel Africa’s equivalent 10x. As well as boosting MTN’s see-through valuation, the cash could help the company’s balance sheet, temporarily substituting for dividends from subsidiaries and partly offsetting increased 2023 capital-spending guidance — both affected by forex  – John Davies, BI senior telecoms analyst.

The memorandum of understanding with Mastercard values the fintech unit at $5.2 billion, MTN said in a statement on its first half results on Monday. Revenue rose 16% to 113.2 billion rand ($6 billion) in the period, according to the company. 

MTN rivals including Airtel Africa Plc, Nairobi-based Safaricom Plc and South Africa’s Vodacom Group Ltd. are all at various stages of transforming from basic voice and text mobile use to digitalization, with a broad aim of separating and monetizing the businesses in the longer term.

Airtel has already brought in Mastercard as an investor in its mobile-money unit. India’s Jio Platforms Ltd., the digital arm of billionaire Mukesh Ambani’s Reliance Industries Ltd., set an earlier precedent by attracting capital from Facebook Inc. and Silver Lake Partners in 2020.

MTN has said previously it plans to raise 25 billion rand from asset sales. Its most recent disposals include the sale and lease-back of its South African mobile-phone towers and a plan to sell some of its West African assets. It also has a stake in New York-listed tower owner IHS Holding Ltd. that it may sell down, although the tower firm’s low trading prices and a dispute with its management has delayed any sale in the near-term.

 

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