India’s Essar will in March complete talks to sell an undisclosed stake to a strategic investor in yu Mobile for $100 million (Sh8.54 billion).
The firm says it needs the Sh8.54 billion immediately and more cash in the short term to widen its footprint in Kenya and upgrade its network from 2G to 3G — which allows for faster data speeds.
“We are talking to several international firms and it is very difficult to give names at this particular stage due to confidentiality agreements signed by the,” Essar Kenya chief executive Madhur Taneja told the Business Daily on Monday, adding that the $100 million deal will be concluded before March.
Mr Taneja declined to disclose the stake yu would offer the foreign investors, making it the latest deal for Essar, which entered the Kenyan market in 2008 with the purchase of Econet Wireless International that was owned by Zimbabwean investor Strive Masiyiwa.
The Indian firm will still need additional shareholder funds to strengthen its business. Yu said it needs $150 million in the short term to meet running cost and capital expenditure — a pointer that the telco may raise additional cash from shareholders or debt.
The need for huge capital outlay has forced local shareholders who owned 20 per cent yu to sell their stake to India’s Essar Telecommunications due to their inability to inject hundreds of millions of shillings.
The Indian firm has bought out local businessmen Peter Kibiriti and Jos Konzolo, a former National Social Security Fund managing trustee. The businessmen owned 20 per cent of yu Mobile through an investment vehicle StarNet Limited.
“Considering the capital-intensive nature of the industry, it was difficult for the local shareholders to keep investing in the business at rapid pace,” said Mr Taneja.
Essar Kenya, like rival Airtel, won a waiver on the shareholding rule from the Communication ministry that requires telcos to have at least 20 per cent local ownership.
But the transfer of the shares is yet to be completed and Mr Taneja said the stock handover has partly delayed the conclusion of the Sh8.54 billion deal.
Yu has also sold its 10 per cent stake in the undersea fibre optic The East Africa Marine System to Safaricom as part of the fundraising efforts.
The firm has been struggling to break even since it entered the Kenyan market in 2008 and has been relying on its parent company and loans to run its business. Its performance has been worsened by the ongoing price war which has seen airtime prices more than halve since August 2010.
Yu’s share of Kenya’s voice traffic stood at eight per cent in September and its subscribers have grown from 1.59 million in 2010 to 2.7 million last year.