Millicom Plans African Safari

Millicom International Cellular S.A. (MICC) is all set to complete the full divestment of its Asian operations by the end of the first quarter 2010. Last June, the company took a strategic decision to get rid of its Asian business in the face of increased competition and an extremely tight credit market. The Asian region, consisting of Laos , Cambodia , and Sri Lanka , contributed just 8% of the company’s total revenue and its EBITDA contribution was even lower at 6%. Millicom engaged Goldman Sachs to help in the disinvestment process. 

In August, Millicom sold its 58.4% stake in CamGSM, its Cambodian operation to its local partner The Royal Group in a cash deal of $346 million. The deal is expected to be closed by end 2009. Yesterday, the company announced that it has entered into an agreement to sale the entire 74.1% holding in Millicom Lao Co. Ltd., its Laos operation, to Vimpel Communications (VIP) - Snapshot Report of Russia for approximately $65 million in total cash proceeds. This deal is also expected to be closed by end 2009. 

Millicom’s largest Asian operation was in Sri Lanka. Named as Tigo Sri Lanka, this is a 100% owned subsidiary of the company. At present Millicom is negotiating with three large Asian wireless service providers for Sri Lanka. State run BSNL, the largest telecom service provider in India, Bharti Airtel, the largest private wireless service provider in India and Emirates Telecommunications Corp., (Etisalat) of UAE have bid for Tigo Sri Lanka. Millicom estimated that disinvestment of the entire Asian operations will reduce capital expenditures by $100 million per annum and is also likely to provide $500 million–$700 million of cash. 

Millicom is now emphasizing more on the African region. Currently the company is present in seven African nations and it may add another one by the end of this year. At present, Africa constitutes one third of the company’s total subscribers while the rest coming from Latin/Central America . The primary driving factor to move towards Africa is the vast under penetrated market. As of now, Africa is has less than 40% wireless penetration. 

However, Africa is also seeing increased competition. Global telecom giant Vodafone Plc (VOD - Analyst Report), South African MTN, Zain of Kuwait, and France Telecom (FTE - Analyst Report) are existing players in this market. Despite their presence, Millicom's African revenue rose 4% to $354 million during the first half of 2009 and its number of subscribers rose 41% to 10.6 million from 7.5 million. Millicom follows a unique strategy of undertaking massive capital expenditures as part of network upgrades and expansion into untapped geographic markets. This, in turn, has resulted in significant subscriber growth and generated record revenue for the company.

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