Yu eases owners’ funding pressure with Sh16bn loan

• Essar has had a difficult past dealing with its local partners, who it says are incapable of meeting their financial obligations to the firm, leaving the Indians to contribute the bulk capital outlays the company requires to remain in business.
• Inability to contribute to Essar Kenya’s finances is the reason the local investors initially diluted their presence from 30 per cent to 20, which is the minimum shareholding required for local investors.
• The Information ministry has, however, allowed foreign investors, especially new comers and those looking for expansion capital, to hold more than 80 per cent so long as they return maximum limit threshold within three years.

Essar Kenya is set to reduce its reliance on its local shareholders and parent company, Essar Group as it prepares to borrow up to $200 million (Sh16.8 billion) from international financiers for expansion and upgrade of its network.

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The operator of yuMobile brand has appointed French global banking group BNP Paribas to arrange the financing that will be staggered over the next three years as part of a fundraising plan that will see the firm raise $250 million (Sh21 billion).

The borrowing will reduce pressure on India’s Essar Group, which owns 80 per cent of the operator, and local shareholder Startnet -- which has a 20 per cent stake and is associated with businessmen Peter Kibiriti and Jos Konzolo.

Poor participation of locals in financing the huge capital outlays of telecoms firms has been a source of shareholder friction across Kenya’s telecom industry and this prompted businessman Naushad Merrali to sell 15 per cent of his 20 per cent stake in Airtel Kenya (then Zain).

“As a loss making company we have relied on shareholders for the bulk of the Sh40 billion Yu has invested since its entry in Kenya four years ago,” Madhur Taneja, the country manager of Essar Kenya told the Business Daily in an interview on Thursday.

“We are racing ahead of time by raising the $250 million which will need new markets and upgrade our infrastructure,” added Mr Taneja.

Essar is seeking to expand into rural Kenya and upgrade its network to 4G—which it will jointly own with the government and rival operators.

4G is expected to help operators ease network congestion and deliver fast connections for users of tablets and smartphones, a lucrative and fast-growing market as the country matures in terms of voice and SMS.

Kenya has many lower-end users who only make calls and send text messages, but its increasingly young and tech-savvy population is buying higher-end handsets that are increasing data usage across the country.

The company has been struggling to break even since it entered the Kenyan market as the fourth operator.

The earnings outlook of Kenya’s mobile phone operators’ performance has been worsened by the halving of call tarrifs in August 2010, pushing the players to increasingly look at the data market and raise cash for upgrades.

Already, Telkom Kenya has received Sh7.6 billion from its shareholders-- the Kenyan government and France Telecom –with its focus on data business.
Essar’s controls 7.7 per cent market share in terms of voice traffic in the year to June, which is an improvement of the 3.3 per cent its held in June last year.

Safaricom remains dominant with 80.7 per cent of Kenya’s mobile phone voice traffic with Airtel coming second with 11.2 per cent.

Essar has had a difficult past dealing with its local partners, who it says are incapable of meeting their financial obligations to the firm, leaving the Indians to contribute the bulk capital outlays the company requires to remain in business.