Chinese firm demands yuMobile debt guarantee

A Chinese firm has demanded bank guarantee for a Sh568 million ($6.4 million) debt owed to it by yuMobile in a dispute that could delay the ongoing acquisition of the Indian firm’s operations by rival telecommunications firms Safaricom and Airtel.

The debt, related to the supply of telecommunications equipment in 2009, is the subject of out-of-court negotiations between the two parties who have been given until September 18 to reach an agreement on the matter.

ZTE Corporation has maintained that it was willing to wait for Essar Telecoms, Yu Mobile’s parent company, to complete the sale to rival firms Safaricom Limited and Airtel Networks, on condition it is granted a security for its dues.

“Our client has numerously indicated that it would be willing to await the conclusion of the transaction if Essar issued a bank guarantee for the sums owed. This issue has been avoided by your client,” reads a filing by ZTE, capturing a letter addressed to India’s Essar Group which owns yuMobile.

ZTE has attached correspondence between itself and Essar as evidence in the suit.

Safaricom and Airtel are said to have agreed to buy yuMobile for $120 million, an equivalent of over Sh11 billion.

READ: Essar to sell Yu to Airtel, Safaricom for $120 mn

ZTE has also claimed that Essar had said it had included a clause regarding the settlement of the debt in the sale agreements with Safaricom and Airtel, but did not indicate any recourse in the event that the money it is owed is not remitted to it, or if the deal fell through.

“By a letter dated June 10, Essar assured ZTE of its commitment to pay the debt and further indicated that the balance would be paid by July 31. Reference was also made in that letter of an intention to include a term in the agreement it was negotiating with the proposed purchasers for payment of the debt to ZTE,” said Yolanda Dong, ZTE’s lawyer.

Essar allegedly declined to provide a copy of the said agreement with Safaricom and Airtel, arguing that the document was confidential.

“It has been agreed in the definitive agreement with Safaricom and Airtel that a sum equivalent to the outstanding payment will be paid directly to ZTE. This in our view is sufficient guarantee that your client need no longer to pursue the threatened winding up,” said a letter from Essar to ZTE dated August 11.

Justice Eric Ogola Tuesday told the two parties that if they will not have met the September 18 deadline, the hearing of the matter will start. Essar had told the court that the two parties were negotiating an agreement, which it said was the reason it had not filed a response in the suit.

ZTE has also claimed that Essar had assured it that it was able to settle the debt owed to it outside the sale of the telco.

Debt recovery

“Our advocates wrote to Essar on August 15 pointing out that in light of the assertion that the defendant was able to pay the debt, payment ought to be made immediately,” added ZTE.

ZTE said that it fears that once the transaction is completed, it will have no option to attach the defendant’s assets for the recovery of the debt.
It has also asked the Court to compel Essar to settle the costs of the suit, which it claims stands at Sh10 million.

ZTE supplied Essar with the equipment in May 2009, which was to pay 20 per cent of the total cost as a deposit.

Essar was initially to complete the $6 million balance by March 2012, but re-negotiated the payment date to June this year.