Airtel opens talks for sale of 30pc stake to Kenyans

The program also raised the minimum local ownership barrier, which had been set at 20 percent since 2008.

In order to reach a sale agreement that includes either finding a strategic investor or listing the local unit on the Nairobi market, Airtel Africa CEO Segun Ogunsanya stated on Thursday that the operator was in discussions with the Communications Authority of Kenya (CA) and the ICT ministry.

“There are a number of options. We can identify a local shareholder or we can also list on Kenya’s stock exchange,” said Mr Ogunsanya on Thursday on the sidelines of an event to launch a virtual SIM card in Nairobi.

“We keep discussing with the regulator as to which one is the best vehicle to ensure there is local participation in the business. We commit to getting this done before the deadline next year, March 2024.”

Several companies, including Airtel Kenya, have been exempted from the prior 20 percent shareholding restriction. This exemption created a window that allowed billionaire investor Naushad Merali to legally sell a sizeable amount of his stake in the company for billions of shillings.

Airtel has indicated that it will not take this route.

Airtel, which reduced its net loss to $18.37 million (Sh2.32 billion) in the year to March 2022 from $22.37 million (Sh2.8 billion) in the prior period, may choose to sell the stake directly to billionaires or high-in-worth investors like local pension funds.

Despite Mr. Ogunsanya’s assertion that it was not yet necessary, Airtel has not yet included a transaction advisor in the stake sale discussions.

The parent company of Airtel Kenya, Airtel Africa, has operations in 14 African nations and is listed on the Nigerian Stock Exchange and the London Stock Exchange.

After Dangote Cement and MTN Nigeria, the company has a market capitalization of Sh1.67 trillion, making it the third-largest corporation on the Nigerian Stock Exchange.

If the operator chooses to turn the local subsidiary, Airtel Kenya, into a public company, it would have to overcome the obstacle that requires enterprises seeking to list on NSE to have a track record of earnings.

Before a company may list on the main sector of the Nairobi bourse, it must be profitable, although there are fewer restrictions for the alternative segment.

“The issuer must have declared profits after tax attributable to shareholders in at least three of the last five completed accounting periods to the date of the offer,” say the NSE listing rules.

The company’s net assets must also be at least Sh100 million if it wants to list on the main market.

As of the end of March of last year, Airtel Kenya had $950.99 million (Sh120 billion) in assets compared to $1.19 billion (Sh151 billion) in liabilities, leaving it technically bankrupt.

The Growth Enterprise Market Segment, which was established for small and medium-sized businesses with growth potential, does not have a profitability and net assets threshold for companies listed on it.

The opportunity for deal-making in Kenya’s quickly developing information and telecoms sector is what has foreign corporations interested in the altered ownership rules.

Experts predict that it may also prompt a number of businesses to seek compliance on the NSE, even if the majority of non-compliant businesses would prefer to sell a stake directly to billionaires or other high-net-worth individuals, such as regional pension funds.

The Kenyan division, which is wholly owned by India’s Bharti Airtel, received an exemption from the local shareholding rule in March 2013 without a deadline for compliance.

The legislation capping foreign ownership of telecoms companies at 80 percent was eased in 2009 to allow foreigners to commence operations without a Kenyan partner and eventually comply by finding local partners in three years. This was done to entice fresh investments into the sector.

More than half of Safaricom is owned by locals, and Telkom Kenya is entirely owned by the government after it acquired a 60 percent interest from private equity company Helios Investment Partners in August of last year.

The difficulty Airtel has had selling the interest has been attributed to the discrepancy between the company’s valuation and the value local investors place on it based on the assertion that the enterprise is still operating at a loss.

This stance served as the impetus for the State to grant Airtel an indefinite exemptions of the local ownership rule.

In the late 1990s, Mr. Merali held a 40% ownership in Airtel Kenya, which was then known as Zain. From then until February 2011, he sold a lot of shares.

In a deal that valued shares corresponding to 30% ownership at Sh4.5 billion, he sold his remaining five percent investment for Sh738 million.

Despite starting a strong price battle that helped to create the current cheap calling rates, Airtel has struggled to challenge Safaricom’s monopoly.

Although it helped it increase its market share, the low price strategy was unable to turn a profit. By the end of September, Airtel Kenya’s subscriber market share had increased from 14.9 percent in September 2017 to 26.3 percent.

When KenCell Communications was jointly established in 2000 by Mr. Merali’s investment company, Sameer Group, and its French partner, Vivendi, he held a 40% stake in the business.

When the French company finally made the decision to depart Kenya three years later, Mr. Merali utilized his pre-emptive rights to play one of the cleverest boardroom chess games, pitting various major international telecoms companies against one another for Vivendi’s stake.