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Ownership Test, Airtel Faces Tough Time

Airtel, which entered Kenya in April 2010 after it bought out Kuwait’s Zain, was offered a three-year grace period to comply with the ownership law. India’s Bharti Airtel must sell

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قديم 10-15-2012, 05:30 PM
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افتراضي Ownership Test, Airtel Faces Tough Time

Airtel, which entered Kenya in April 2010 after it bought out Kuwait’s Zain, was offered a three-year grace period to comply with the Ownership law.

India’s Bharti Airtel must sell 15 per cent of its stake in Kenya’s second largest telecoms operator to a local to avoid getting into trouble with the regulators.

The mandatory share sale is to bring the firm in full compliance with Ownership regulations that require telecom companies to maintain at least 20 per cent local shareholding.

Airtel, which entered Kenya in April 2010 after it bought out Kuwait’s Zain, was offered a three-year grace period to comply with the Ownership law.

Information minister Samuel Poghisio put the telecom operator in the Ownership tight spot with his decision to grant businessman Naushad Merali (the then only local shareholder in Zain) permission to sell 15 per cent of his 20 per cent stake in the firm to foreign investors.

Telecoms regulator the Communications Commission of Kenya (CCK) told the Business Daily that the grace period granted to Airtel will not be renewed meaning the Indian telecoms giant must find a buyer of the 15 per cent stake by April next year.

“Airtel will be required to comply with the Ownership policy at the expiry of the waiver period,” said Francis Wangusi, the CCK director general.
Senior Ministry of Information officials also insisted that Airtel must get local shareholders by the end of the grace period in March.

“The provision is only for three years after which the beneficiaries must comply,” said Bitange Ndemo, the Permanent Secretary in the ministry.
But a lawyer with knowledge of Airtel Kenya’s operations said it has been weighing the possibility of asking for an extension.

The Indian telecoms operator argues that finding a buyer for the 15 per cent stake worth billions of shillings would be difficult given the fact that the business is yet to make a profit since it was launched three years ago.

The 15 per cent stake is now estimated to be worth Sh5.3 billion based on the $63.75 million (now Sh5.2 billion and then Sh4 billion) that Mr Merali earned when he sold the equivalent stake to Zain Group six years ago and would be corporate Kenya’s biggest share transaction in five years if successful.

Mr Merali sold the 15 per cent stake in the then Zain Kenya to Kuwait-based Zain Group, which in June 2010 sold its African interests to India’s Bharti Airtel.

The Ministry of Information extended by one year, the exemption which would have lapsed in the first quarter of this year, based on the 2009 deal.
Finding a local with Sh5 billion to spend in the transaction will be no mean task for Bharti Airtel, analysts said.

“It may not be easy for Airtel to attract local investors, the major challenge being that the company is not profitable,” said Eric Musau, a research analyst at Standard Investment Bank. “The process of agreeing on a reasonable valuation of the shares in such circumstances is enormous,” he said.
Besides, Mr Musau said Airtel’s inability to pay dividends in the mid-term and local interest in the stake will therefore be mainly speculative.

Airtel did not respond to our questions on this story.

Airtel — which kicked off a price war with Safaricom in August 2010 — is still searching for the formula to profitability. Safaricom controls 80.7 per cent market share in terms of voice traffic – a pointer to the fact that the price war, which halved airtime costs compared to August 2010, has not shifted the players’ stakes significantly.

Airtel’s share of the market stood at 10.9 per cent in the year to June while Essar had 7.7 per cent, according to the latest CCK data.


Ownership Test, Airtel Faces Tough Time

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