In a strategic move to tap into Africa’s burgeoning fintech sector, Mastercard Inc. has announced its agreement to acquire a minority stake in the financial-technology arm of MTN Group Ltd., the continent’s largest wireless carrier. The news has propelled MTN’s stock to its highest level in three months.
While the precise extent of investment by Mastercard remains confidential until the deal concludes, MTN revealed on Monday that the transaction places a valuation of $5.2 billion on the entire fintech unit. Speaking on an investor call, MTN’s CEO, Ralph Mupita, unveiled that the acquired stake “will go up to a maximum of 30%, but obviously only if that makes sense.”
Under the terms of this commercial arrangement, MTN will harness Mastercard’s advanced technology infrastructure to expand its payments and remittance services across Africa. The move comes at a pivotal moment, as Africa’s digitally-native population increasingly leverages mobile phones to bridge gaps in services, notably in the realm of banking. This trend has opened up a lucrative and swiftly growing avenue in the fintech space for wireless carriers. Notably, much of the investment thus far has been directed towards mobile-payment systems, fostering a wave of dynamic startups like Flutterwave Inc. and Interswitch Ltd.
Following this announcement, MTN’s shares surged 4.9%, closing at 135.86 rand in Johannesburg — the most substantial increase since May 12. This valuation is robust, particularly considering the ongoing fundraising challenges faced by numerous technology startups. Moreover, the fact that Mastercard will not attain a controlling stake in MTN has been seen as a favorable outcome by industry experts.
Peter Takaendesa, the Head of Equities at Mergence Investment Managers in Cape Town, underscored the significance of this strategic alignment, emphasizing how it fortifies MTN’s see-through valuation and potentially bolsters the company’s balance sheet. Takaendesa noted that this influx of capital could temporarily serve as a substitute for dividends from subsidiaries, thereby partially offsetting the impact of increased 2023 capital-spending guidance and currency fluctuations.
The memorandum of understanding between Mastercard and MTN values the fintech unit at an impressive $5.2 billion, as highlighted in MTN’s statement on its first-half results. The company reported a robust 16% surge in revenue, amounting to 113.2 billion rand ($6 billion) during the period.
In the realm of digital transformation, MTN’s rivals, including Airtel Africa Plc, Safaricom Plc, and Vodacom Group Ltd., are also actively transitioning from traditional voice and text mobile usage towards comprehensive digitalization. This transition is part of a broader strategy aimed at separating and capitalizing on these digital ventures over the long term.
Airtel has already set a precedent by attracting Mastercard’s investment in its mobile-money division. The digital arm of India’s Reliance Industries Ltd., Jio Platforms Ltd., had earlier secured capital from Facebook Inc. and Silver Lake Partners in 2020.
MTN’s ongoing commitment to enhancing its financial flexibility has been evident through its intent to raise 25 billion rand from asset sales. Recent strategic actions have included the sale and lease-back of its South African mobile-phone towers, as well as plans to divest from select West African assets. Furthermore, MTN holds a stake in New York-listed tower owner IHS Holding Ltd., which may also be subject to divestment, albeit constrained by the tower firm’s lower trading prices and ongoing management disputes.
In conclusion, the minority investment of Mastercard in MTN Group’s fintech business marks a significant stride towards fortifying Africa’s fintech landscape. As wireless carriers like MTN harness advanced technologies to expand their digital payment services, the continent’s youthful and tech-savvy population stands poised to embrace a new era of financial empowerment.
Source: Bloomberg
