MTN targets valuation of at least $5bn for mobile money arm

South Africa’s MTN, the continent’s biggest mobile phone company by subscribers, is looking to value its mobile money arm at more than $5bn as it prepares to sell or list a minority stake to draw global investors enticed by fast-growing fintech assets.

Chief executive Ralph Mupita told the Financial Times that the unit, which added almost 12m new users to a total of more than 46m last year, should be worth at least $5bn to $6bn and that the group would spin it out within the next year.

Johannesburg-listed MTN, which has 280m global subscribers, unveiled the separation plan last month as part of a strategy shift to refocus its business and cut R43bn ($3bn) of net debt.

“We think the best way to run these businesses is to structurally separate them,” Mupita said, adding that the move would unlock value hidden in MTN’s $11bn market capitalisation.

The group wants to tap into growing investor interest in the mobile money businesses built by African telecoms in the past decade that allow phone subscribers to send or receive money outside banks and increasingly sell ancillary services such as microinsurance.

MTN’s rival Airtel Africa recently sold minority stakes in its mobile money business, valuing it at more than $2.6bn excluding cash and debt. The Rise Fund, the impact investing arm of buyout firm TPG, and Mastercard bought stakes for $200m and $100m respectively.

“There is surely value to be unlocked from the telcos by carving out their mobile money operations,” analysts at Renaissance Capital wrote in a recent note.

MTN’s mobile money business has more than double the number of the Airtel Africa unit’s 21m. “We think that the fintech business will be worth more than $5bn, reading across from the Airtel Africa transaction,” Mupita said.

The group’s financial services interests also include an insurance joint venture with over 10m customers. Separating these businesses has become more pressing as their scale has become “quite material”, Mupita added.

The move also anticipates growing regulatory scrutiny in Africa of increasingly complex financial services being wholly owned by mobile phone companies. “In the discussions we’ve had with regulators, they welcome this,” Mupita said.

MTN is also aiming to raise cash with a sale and leaseback of most of the group’s mobile-phone towers in South Africa by the end of the year, and it is exiting its troubled Middle East operations.

For many investors MTN is still seen as a proxy for its single biggest market, Nigeria, although it was it was left reeling from a $5bn fine imposed by regulators in the country in 2015 for failing to disconnect millions of unregistered Sim cards.

This was later negotiated down to $1.5bn, but shortages of foreign currency have also made it difficult to repatriate cash to finance dividends.

Despite these problems “there is a lot we can control” in Nigeria, a market that accounts for nearly 40 per cent of group earnings and 12m of the 29m new subscribers added last year, Mupita said. “We think Nigeria is a huge data story,” he said. “There are still low levels of internet penetration which we believe we are well positioned to drive higher.”