India’s Essar buys out local shareholders of Yu

Mr Jos Konzolo (left) and Mr Madhur Taneja. FILE

What you need to know:

  • Jos Konzolo, former NSSF boss and Peter Kibiriti exit telco for undisclosed amount.
  • The businessmen owned 20 per cent of Yu Mobile through an investment vehicle dubbed StarNet Limited.

Essar Telecommunications has bought out local shareholders of Yu Mobile, giving the Indian firm full control of Kenya’s fourth mobile telecoms operator for undisclosed fee.

The firm on Tuesday said it has bought out local businessmen Mr Peter Kibiriti and Mr Jos Konzolo due to their inability to inject hundreds of millions of shillings in shareholders’ loans to fund Yu’s expansion plans.

The businessmen owned 20 per cent of Yu Mobile through an investment vehicle dubbed StarNet Limited.

The locals become the latest telco investors including tycoon Naushad Merali to take advantage of fundraising plans to exit and reap from their investment—thanks to their early entry in the lucrative sector.

Essar Kenya like rival Airtel won a waiver on the shareholding rule from the communication ministry that requires telecom firms to have at least 20 per cent local ownership.

“We had applied for waiver of local shareholding in early 2013 and we did get the waiver, thereby we increased the stake from 80 per cent to 100 per cent,” said Mr Madhur Taneja, the Essar Kenya CEO in an interview with the Business Daily yesterday.

“Considering the capital-intensive nature of the industry, it was difficult for the local shareholders to keep investing in the business at a rapid pace. We are now in process of getting the share transfer done and filing the shareholding change,” he said.

The announcement comes as Essar confirmed that it sold a 10 per cent stake in the undersea fibre optic The East Africa Marine system (TEAMs) to Safaricom.

Yu, which has been looking for a strategic investor to inject cash and stave off a liquidity crisis, says it used proceeds from the deal to sustain operations.

Essar entered the Kenyan market in 2008 with the purchase of Econet Wireless International that was owned by Zimbabwean Mr Strive Masiyiwa—a deal that initially gave the Indian telecom firm a 35 per cent stake before growing ownership to 70 per cent.

It later acquired an additional 10 per cent stake following a dilution of the local shareholders stake because they failed to contribute their share of equity required to fund the company’s growth.

Now, former business journalist Mr Kibiriti and Mr Konzolo, previous NSSF managing trustee, have been forced to exit due to another round of fundraising.

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 alone to search for money to finance the huge capital outlays that 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 per cent despite the regulation requiring reserves of 30 per cent shareholding for locals.

Poor participation of locals in financing the huge capital outlays of telecoms firms has been a source of shareholder friction across the industry.

This allowed Mr Merali with the permission of the communication ministry to reduce his stake in Airtel from 20 per cent to five.  Bharti Airtel owns 95 per cent.

Yu says its parent company is in talks with a strategic investor meant to inject expansion cash into the firm to widen its footprint in Kenya and upgrade its network from 2G to 3G.

Denies reports

The upgrade to 3G is set to help the operator meet growing demand for high-speed wireless services as consumers use tablet computers and smartphones to surf the web.

Mobile phone operators in Kenya like Safaricom, Telkom Kenya and Airtel are on 3G.

Yu said early that it needed nearly Sh10.5 billion in the next two years to meet its short and mid-term plans. Essar did not say whether the strategic investor will acquire a stake in the telco or will just offer debt to the firm.

On Tuesday, it denied reports in India that it was in advanced talks to sell a significant stake of its Kenyan business to rival Airtel.

This position was in response to India’s Economic Times report that cited unnamed executives saying that Bharti Airtel was eyeing Yu mobile and that a deal worth between $70 million (Sh6 billion) and $75 million (Sh6.5 billion) will be concluded within two to three months.

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