Flagship project strengthens digital inclusion in Africa

The EKN-backed financing was instrumental in making the project a reality.

Digitalisation promises to transform African societies in improving livelihoods, promoting financial inclusion and facilitating access to health, education and government services. Growing the availability of 4G and 5G networks is key to accelerate the digitalisation of African economies.

Thanks to a deal where Sweden’s Ericsson delivers equipment to Axian Telecom, financed by J.P. Morgan and covered by EKN, with additional financing from a Development Finance Institution (DFI), Tanzania and Madagascar will benefit from higher data speeds and better cellular coverage.

Hailed as a market disruptor, Axian Telecom praises the financial setup that permitted a speedy rollout to enable a rapid capture of market share. Nicolas Sylvestre-Boncheval, Group CFO of Axian Telecom says: “The EKN-backed financing was instrumental in making the project a reality. Since we were doing accelerated capex, financing was critical to help us endure the short-term financial burden.”

Without adequate financing, the project would have been carried out over a much longer timeframe, he says. “Capex always has a delayed impact on revenues, profit margins, and ultimately cash flow generation. The right financing structure allows us to mend this gap and permits bolder and bigger capex, which in turn has a virtuous impact on the operation.”

One sizable facility

The smooth cooperation between J.P. Morgan, EKN, Ericsson, and the DFI allowed Axian Telecom to negotiate one sizeable facility instead of having to deal with different instruments and different banks. J.P. Morgan lends USD 159 million over seven years with EKN cover, while the DFI contributes USD 100 million over ten years, all at attractive rates.

“The transaction is a significant achievement for J.P. Morgan with many firsts,” says Ayotunde Lemo, Vice President Export & Agency Finance at J.P. Morgan, adding, “It is the first EKN-backed financing in Africa and the first ECA-backed transaction in Madagascar and Tanzania arranged by us. We are proud to have partnered with Axian Telecom and EKN on this important investment into digital infrastructure for a more inclusive and sustainable future.”

The cooperation between different lenders reduced the risk and allowed Axian Telecom comfortable planning and more agile investments, according to Sylvestre-Boncheval. “The different strengths and mandates of each individual lender allowed us to build a flexible financing structure. This is the first time in Africa for a complementary hybrid financing with an ECA and a DFI. The drawdown process has been seamless and the teams from Ericsson, EKN, J.P. Morgan, the DFI and Axian Telecom cooperate well.”

The DFI covers parts of the deal that J.P. Morgan and EKN were unable to finance. A source at the DFI points out that, “Co-financing is a way of mobilising resources by partners working together to maximise the impact from a certain investment, not just commercially but from community and climate angles as well.”

In 2022, J.P. Morgan acted as Joint Global Coordinator and Development Finance Structuring Agent for Axian Telecom’s USD 420 million debut bond offering.

“When Ericsson approached us to discuss financing the roll-out of 4G and 5G network upgrades across Axian Telecom’s pan-African operations, we saw this as an opportunity to continue supporting Axian Telecom’s growth path and fostering the exporter relationship with Ericsson,” says Lemo, concluding, “We are delighted to have powered Axian Telecom with an innovative solution, enabling landmark achievements for all parties involved.”

The DFI spokesperson adds, “This cooperation ensures that there is money flowing into Africa that might not otherwise have found its way there. The cooperation and partnership with EKN has been crucial to the project and to mobilise investment for a high-impact project filling a gap in the market and unlocking the development in digitalisation.”

Speedy rollout

Hamdi Salhab, Senior Structured Finance Adviser at Ericsson, says the deal is notable for its size and the financial instruments used. “EKN and the DFI worked together to make the project fully funded with risk cover. Short-term facilities such as LCs from our in-house banks ensured a speedy rollout that enabled the project to start much earlier than originally planned.”

To support the strategy of Axian Telecom, it was essential that financing and payment mechanisms were sorted out immediately to avoid delaying the project. “That request was solved by involving EKN and instrumental in pushing the agenda and to support the strategy of the customer,” says Salhab and adds, “The speed was essential for the buyer to be able to fill what was seen as a gap in network capacity on the market and capitalise on the opportunity.”

To meet this goal, the drawdown schedule matched individual shipments with corresponding payouts, leaving the exporter with zero accounts receivable. To Ericsson, this was greatly appreciated. “The aligning of commercial contract deliveries and timing with the proposed financing amount and availability proved a critical part of the structuring,” says Salhab.

To the people of East Africa, financial structuring probably matters little, whereas the opportunity to communicate and go online matters a great deal—not just to roadside produce vendors who can price their goods correctly, but also to young people needing online tutoring and citizens requiring health services in rural areas.

Vincent Daly, Head of Customer Finance at Ericsson, points out that digitalisation and mobile technology are relatively more important to developing markets where fixed lines and broadband infrastructure are lacking. “Studies show that when mobile operators invest in increased coverage, it has a very significant positive impact on society, promoting equality, access to education, and supporting the economy and entrepreneurs within the society.”

Designated as Flagship Project

Salhab adds, “We’re very encouraged that EKN has taken this position. For challenging markets in Africa, that support is important. We haven’t done many ECA-supported transactions in Africa. Compared to customers in developed countries, ECA support is more of a deal breaker and a truly business-enabling transaction in markets such as Africa, whereas in high-income countries, ECAs are nice-to-have.”

Diversification is obviously a way to raise more money. “More sources, more lenders, more money.”

The DFI spokesperson agrees that improved mobile coverage is a game changer for the local population: “Improved access to health services and new economic opportunities is simply game-changing, particularly in rural areas.”

The unique cooperation between a commercial bank, a telecom operator, an exporter, an ECA, and a DFI offers a genuine upside, the DFI source concludes: “Bankers, engineers, and economists work together to maximise the impact of an investment. We share best practices and ensure the community and climate angles are being met, while also making sure the investment is commercially sustainable.”

As a high-standard, transparent infrastructure partnership that meets global infrastructure development needs, the European Commission has labelled the project a Flagship Project within the Global Gateway, the EU’s contribution to narrowing the global investment gap worldwide. The purpose is to boost smart, clean, and secure links in digital, energy, and transport sectors and to strengthen health, education and research systems across the world. “The Global Gateway strategy is a template for how Europe can build more resilient connections with the world,” said Ursula von der Leyen, President of the European Commission.