Mastercard has agreed to buy a minority stake in the fintech arm of MTN Group, Africa’s largest mobile phone provider, which it values at $5.2 billion.
Formal investment agreements are likely to be signed very soon as both parties near the end of the regular due diligence process.
The investment will be closed subject to customary closing conditions, MTN announced in the company’s half-year financial performance report released on Monday.
According to MTN Group President and CEO Ralph Mupita, the deal will be structured as a payments and remittance business partnership using Mastercard’s technical infrastructure to develop across Africa and a minority investment.
He said the size of the shares will be announced after the transaction is completed, according to Bloomberg.
“We delivered a resilient performance in H1 23 and made good strategic progress in a challenging macroeconomic environment.
In South Africa, we were very encouraged by improved grid availability based on our investments in energy resilience, which led to a better Q2 23 performance than Q1 23,” Mupita said in a statement.
“We delivered a very strong operating result in Nigeria as we managed the Q1 23 cash crunch and picked up inflation.
The policy changes made in Nigeria in Q2 ’23 have short-term negative impacts, but we see them as very constructive for the investment climate in the medium to long term.”
The news comes a year after MTN Group said it was looking for minority investors to invest in its African fintech subsidiary after separating it from the carrier’s core telecoms business to maximize development of the thriving division.
The Johannesburg-based company’s aspirations have been boosted after the acquisition of a mobile banking license in Nigeria.
Its largest market, which has enabled MTN to offer financial services to millions of new clients.
In the first half of this year, transactions recorded in MTN’s mobile money business increased by 37% to $8.3 billion; more than 60 million active users have done them.
At the end of June 2023, the MTN group had more than 290 million subscribers. Meanwhile, in 2021, Mastercard struck a deal with Airtel Africa.
One of MTN’s competitors, which saw the Indian telco acquire $100 million for its mobile money business, Airtel Mobile Commerce BV, at a valuation of $2.65 billion.
According to Bloomberg, Mastercard’s planned US$5.2 billion minority investment in mobile money MTN translates to 16 times trailing EBITDA much higher than Airtel Africa’s corresponding 10 times.
The cash could help MTN’s balance sheet by temporarily replacing dividends from subsidiaries and somewhat offsetting increased capital expenditure projections for 2023 – both affected by forex.
It’s not just Airtel and MTN that have lofty fintech ambitions. Safaricom, through M-Pesa, has dominated Kenya’s mobile money business for years.
The telecommunications operator, along with South Africa’s Vodacom, also wants to separate its fintech arm from the traditional telecommunications business.
There is an incentive to pursue fintech activities for these telecom operators in Africa as the continent gradually shifts from primary voice and text mobile services to digital services.
The financial services these telcos offer will see them compete with established companies in the African fintech space, including Interswitch, Flutterwave, Chipper Cash and MFS Africa.
MTN attributes the limited active user growth to the cash crunch Nigeria experienced at the start of the year, as well as the cleanup of its user base in Ivory Coast.
Nevertheless, the company remains optimistic about its long-term prospects, targeting 100 million monthly active users, 2 million agents and 3 million merchants by 2025.
However, the company identifies several key challenges affecting its near-term outlook, including geopolitical factors, inflation and fluctuations in the exchange rate of the Nigerian naira and the South African rand against the US dollar.
MTN expects significant demand in two segments: data and fintech (through the expansion of its MoMo mobile money service).
Fintech transaction volume has increased 3.2 times since the end of the period in 2021.