The second-largest investor in Rain, African Rainbow Capital (ARC) Investments, has valued the South African data-only mobile network operator at R17.9 billion ($1 billion). Over the 2021 year, this amount has increased by 7.9%.
According to the company’s financial report, ARC Investments’ 19.93% stake in Rain was worth R3.635 billion at the end of June 2022, up R320 million (9.7%) from R3.314 billion a year earlier. This gives it an implied value of R17.906 billion.
In support of the value, ARC Investments claimed that Rain continued to perform admirably in both 4G and 5G sales because demand remained strong before and after the relaxation of COVID-19 limits.
The reason for the increase in value is that Rain was able to buy a new spectrum at a government-sponsored auction in March 2022. For a total of R1.43 billion, it bought 20MHz in the 700MHz band and 20MHz in the 2.6GHz band.
ARC’s Opinion on Rain
ARC Investments says that Rain’s plans for how to use the extra spectrum should have a positive effect on cash flow. The R56 million that ARC Investments put into the provider of data-only mobile networks was taken into account in the valuation.
According to ARC Investments, rain met its R1 billion EBITDA (Earning before Interest, Tax, Depreciation and Amortization) goal for the fiscal year that ended in February 2022.
The third-largest mobile network operator in South Africa, Telkom, received a formal offer from Rain in August for a potential merger.
The South African Takeover Regulation Panel argued that Rain had not followed the correct procedures before making the announcement, forcing the network to reverse it quickly. Rain later said that it would soon issue an official, non-binding proposal.
The second-largest holding in the network operator’s stock, Rain, is owned by ARC Investments and now represents 26.6% of the fund’s worth. The fund, which also invested in the online bank TymeBank, made this investment its largest to date.
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Rain Starts Merger Talks With Telkom
Rain is acting to thwart MTN Group’s negotiations to buy Telkom. It plans to suggest to Telkom’s board that the company merge with the wireless broadband provider instead.
A startling development occurred on Thursday when Rain announced it would formally propose the merger of the two businesses to the board of Telkom.
According to Rain, a combination of Telkom and Rain would result in the development of a “5G powerhouse” in South Africa. It said that the valuation and structure of the deal, as well as the other terms, would still need to be agreed upon. According to Rain, the “compelling business case for integrating the enterprises” does exist, according to Rain.
“Some consolidation in the industry is both desirable and inevitable as it leads to better utilization of infrastructure. It should not, however, be at the expense of competition which promotes greater access for consumers to data at more affordable prices, “Rain said in a clear criticism of the impact of a possible MTN acquisition of Telkom.
“The proposed merger would create a strong third major player that could go up against what is essentially a duopoly in South Africa,” the report said.
“It is a logical alternative to simply selling to MTN and would also be consistent with the pro-competitive policies of the government.” The merger would bring together Telkom’s considerable infrastructure and mobile businesses and the successful, new-age 4G and 5G businesses of Rain.
Rain said it is an “established and fast-growing company with little debt and sufficient facilities to fund its growth”. It is, however, still small compared to Telkom.
It claims to have reported more than R1 billion in earnings before interest, tax, depreciation, and amortization (Ebitda) for the 2022 fiscal year, yet it doesn’t give many details about its financials. Nearly 12 times as much, or R11.9 billion, was Telkom’s Ebitda in 2022.
Even so, Rain insisted that it is serious about seeking a deal because there are “many” possible advantages. These consist of:
Due to the avoidance of duplication, there will be a substantial reduction in capital expenditure as well as operational costs when the number of Rain and Telkom sites combined is equal to that of Vodacom and MTN.
With Openserve’s fiber network and Rain’s 5G technology, it would be possible to speed up the rollout of 5G across the country and serve more homes.
“5G to the home is a very attractive alternative to ADSL, 4G and fibre, and can provide Telkom and Openserve’s existing home customers with a plug-and-play solution as well as attract new customers as the home broadband market continues to grow,” Rain said.
Rain’s prospects as a niche player are great. However, the option to combine forces with Telkom would take the merged company to the next level and benefit both Telkom and Rain stakeholders, “said company chairman Paul Harris. “It is a pro-consumer option in line with government policy, and the business case looks compelling.”
Asked for comment, Telkom said in a terse holding statement: “Telkom can confirm that no offer or proposal has been received [from Rain].”
