Safaricom terms throw M-Pesa split push into a spin (2024)

Safaricom has revealed it would only consider splitting its mobile money platform M-Pesa from the rest of the telecoms business if the move adds value to its investors and customers, signalling a sticky path ahead for the Central Bank of Kenya (CBK) which has been pushing for the transaction.

Peter Ndegwa, the chief executive at Safaricom, told the Business Daily that the telco doesn’t feel any pressure to implement the hive-off, which also poses a Sh75 billion tax liability headache to the company unless its board is convinced that such a transaction will add value to investors and millions of customers.

Mr Ndegwa added that discussing the potential tax liability expected to arise from the split is “jumping the gun" because the telco's board is yet to decide on the M-Pesa split.

“There is no decision that has been made by the board [regarding M-Pesa hive-off]. There isn’t any pressure to do it. If we do it, we will do it because we want to proactively do it and it serves a purpose either for investors or customers,” said Mr Ndegwa in an interview last week.

“I consider the question on taxation as jumping the gun. If you want to sell your land, you will consider what taxes to pay. At that time, you will need to consider taxes as a consequence of a decision you have already made. For us, we haven’t made any decision.”

The telco’s stand means a longer wait for the CBK, which, alongside the Treasury, has been keen on meeting the Safaricom board to discuss the split and how to address a Sh75 billion tax, including capital gains tax, that could arise from the deal.

The telco is facing increasing pressure from the CBK and Parliament to split its business. However, Safaricom indicated in the past that it prefers forming a new group holding structure that will allow it to keep the same businesses within the same group.

The CBK is keen on the M-Pesa hive-off from Safaricom to get total oversight over the mobile money business, which in the year ended March 2024 transacted Sh40.24 trillion.

M-Pesa’s stature in the economy continues to grow, with both Treasury and CBK stating in the past that the product poses an economic risk in case of many downtimes or total collapse. CBK governor Kamau Thugge last month said the Treasury and CBK officials had arranged to meet Safaricom’s board to discuss the Sh75 billion tax liability that he believed was the reason Safaricom was dragging its feet on the hive-off. The tax question is also expected to be addressed in the 2024 Financial Bill to smooth the process, should Safaricom make the decision.

But the revelation that the Safaricom board’s first determinant will be the benefit for shareholders and customers means waiving the tax may not be reason enough for the telco to be persuaded to implement the split.

Mr Ndegwa said he believes Safaricom customers and shareholders have benefited because telecommunications and mobile money businesses have been under one company.

“If it [the split] doesn’t add value to customers or investors, then we will not go that direction. At the moment, no decision has been made in terms of breaking and there is no pressure from any source in terms of splitting,” said Mr Ndegwa.

Airtel Kenya in October 2022 completed the process of separating its mobile money business from the telecommunications arm, with the new entity now operating as Airtel Money Kenya Ltd. The Airtel move followed that of MTN Group Ltd that mid 2021 hived off mobile money from the telecoms business. Mr Ndegwa, however, said he is yet to see a compelling case for Safaricom to follow suit.

“I know the question is related to the fact that MTN and Airtel have done it. From what we hear from public sources, not internal information, it is not clear whether it is a good or bad thing. It just depends on what the organisation wants to do,” he said.

The CBK currently regulates Safaricom’s mobile money business while the Communication Authority of Kenya regulates the telecommunication business. The banking sector regulator however wants total separation to get better oversight.

The firm’s telecommunications and M-Pesa businesses currently operate separately and with different teams but without formal structures separating them. Mr Ndegwa had said previously that formal structures would allow the separate businesses to raise money or co-invest with others were such a need to arise.