Companies

KDN plans sale of stake to recover from losses

fibre optic

A labourer lays a fibre cable in the past. KDN seeks to recover from losses. Photo/File

Telecoms infrastructure firm Kenya Data Networks (KDN) will sell a significant stake to a strategic investor in December to inject cash and help it recover from losses.

Altech of South Africa, which owns 60.8 per cent stake, says it needs new capital to shore up its Kenyan business that is facing stiff competition from rivals Wananchi Telecoms, AccessKenya and Telkom Kenya.

READ: Telkom Kenya moves to reclaim data space

KDN’s chief executive Shahab Meshki on Monday told the Business Daily the search for the equity investor has attracted a number of local and foreign firms.

READ: KDN eyes equity investors to cut losses

“We have identified a number investors and the matter will be made public within the next two to three months as the firms are still conducting  due diligence,” said Mr Meshki, citing confidentiality agreements for not mentioning the investors.

The Kenyan unit has been in losses mainly due to the loss of big contracts including the multi-million shilling contract with Safaricom last year — a move that has seen KDN along with Altech’s West Africa operations hit earnings of the parent company.

“External market conditions and internal operational challenges within KDN continue to impact negatively on the performance of the operation resulting in it performing below budget and incurring losses,” Altech said in a statement quoting its CEO Craig Venter on Friday.

“The major focus going forward is to grow the revenue line while reducing customer churn and managing expenditure. We have initiated discussions concerning the introduction of partners into these operations and will advise shareholders of progress in this regard, in due course,” added Mr Venter.

It’s not clear whether the company will create new shares to accommodate the investors or the principal shareholders will cede their shares to the targeted owners, whom analysts reckon is likely to be a private equity fund.

Besides Altech, the other key shareholder in KDN is Sameer ICT, which is associated with businessman Naushad Merali.

Sameer owned 96 per cent of KDN while its former CEO Kai Wulff held a four per cent stake, until 2008, when Altech bought a 51 per cent share in the company in a deal estimated at Sh5.2 billion. The South African increased its ownership to 60.8 per cent in 2009.

Altech did not provide latest figures on KDN’s performance, but the Kenyan unit reported a drop in revenue from Sh3.2 billion to Sh2.1 billion for the six months ended August last year, while operating profit dropped from Sh657.2 million a year ago to Sh12.6 million.

KDN says the company has in the past year dropped into losses on high cost and stiff competition.

The firm’s market share dropped to 30.2 per cent in March from 36.2 per cent in September last year based on subscribers, according to data from the Communications Commission of Kenya (CCK), but its remains the top internet firm in Kenya ahead of Wananchi Telecoms and AccessKenya.

Wananchi seems to be the biggest beneficiary of the market share shifts after it increased its hit 23.8 per cent in March from 14.25 per cent in September.

In May, KDN shed 51 jobs to cut costs.

READ: KDN sends staff home in cost-cutting drive

“The staff reduction is one of the many initiatives within KDN to align the revenue and cost basis,” said Altech.

Altech has blamed its poor performance on its East African and West African units, which it has placed on auction block. It has inked an agreement to sell 75 per cent of its interest in Altech West Africa.

READ: Altech Group plans to set up Sh830m data centres in EAC

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