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Helios keen to buy more telephone towers in South Africa, CEO says

The company would “absolutely” consider bidding for more South African towers if they are put on sale, Pandya says. Helios is “very keen on expanding” in South Africa.

Helios, which trades on the FTSE 250 index in London, counts Helios Investment Partners, Albright Capital and the International Finance Corporation among its investors.

Its sale and leaseback model in Africa aims at allowing wireless operators to outsource non-core tower activities and focus on improving their services. Helios entered South Africa in 2019 through a partnership with network solutions business Vulatel, and bought SA Towers, with a pipeline of 500 site locations, the same year.

Power management is an issue for mobile network operators (MNOs) in South Africa, given the risk of outages imposed by state-owned utility Eskom. Helios offers power as a service, providing a hybrid solar backup power supply with diesel generation as the final fall-back.

  • “Power uptime is critical for our customers,” Pandya says. “We don’t worry about Eskom, but our clients do.”
  • Africa is “ten to fifteen years” behind the West in selling off its telecom towers, Pandya says.
  • Tower companies own about 70% of phone towers globally, compared with about 27% in Africa, he  says.
  • The opportunity in Africa remains “immense” and Helios has “a very active M&A pipeline.”

African Prospects
Helios in March agreed to buy infrastructure operating companies in Madagascar, Malawi, Chad and Gabon from Airtel Africa. The markets have very low telecoms penetration and on average will see annual subscriber growth of about 5% in coming years, Pandya says.

  • The Madagascar and Malawi purchases will cost $108m. The Chad and Gabon deals will take longer to finalise as Helios needs to get licenses to operate, Pandya says.
  • He’s aiming to complete those purchases in the first quarter of 2022.

Around 160,000 towers are still owned by MNOs in Africa, Pandya says. Of those, Helios is tracking about 100,000 and there is a smaller group of about 7,500 towers where it has a “very close magnifying glass.”

  • Many subscribers are still using 2G or 3G, and in the future more infrastructure will be needed to supply 4G while the absolute number of subscribers will continue to grow, he says.
  • Helios is “a hotel for telecoms equipment,” Pandya says. “We will charge more as tenants take more space.”

Rising Debt
Some analysts have sounded a note of caution over the group’s debt levels.  Debt rose 11% to US$692m in 2020, giving a debt to EBITDA to debt ratio of 2.9. That’s still well below the company’s target range of 3.5 to 4.5. Yet the company is still making pre-tax losses, and the agreed acquisition of towers from Free Senegal for about $193m, as well as the Airtel Africa purchases, will push the debt higher.

According to a research note from Berenberg in April, the risks Helios takes by focusing on Africa are a concern for some investors. Those risks, Berenberg argues, are reflected in company’s high cost of capital.

  • About 70% of earnings before interest, taxes, depreciation and amortization from Africa is in hard currencies which reduces the risks, says Berenberg, which rates the shares as “buy”.
  • Helios has consistently earned a return on capital employed (ROCE) of 14%, compared with about 10% and 7% respectively for US and European tower cos, Berenberg says.
  • The company argues that the mission-critical nature of African towers means that the infrastructure carries less political risk than other assets.

Helios has sufficient finance to cover its currently planned transactions, Pandya says. The company will at some point need to raise funds to be able to acquire towers. “Ultimately we will look at a refinancing,” Pandya says. The timing, he adds, will depend on the speed at which deals for towers can be executed. “The appetite for equity will be there when we need it.” The Africa Report


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