Merali cuts KDN stake as South African firm exits

Naushad Merali will now hold a 20 per cent stake in Kenya Data Network (KDN) after the deal. Photo/FILE
Naushad Merali will now hold a 20 per cent stake in Kenya Data Network (KDN) after the deal. Photo/FILE  Nation Media Group

Businessman Naushad Merali has ceded a 19.2 per cent stake in Kenya Data Network (KDN) in a transaction that has seen South Africa’s Altech sell its majority stake in the Internet firm to a UK company.

Regulatory filings with the Johannesburg Securities Exchange (JSE) where Altech is listed indicated that the South African firm has sold its 60.8 per cent stake to Liquid Telecom — the UK-based firm that offers data, voice and wholesale Internet in developing countries.

The filings indicated that the UK firm will control 80 per cent of KDN, suggesting that Mr Merali, who holds a 39.2 per cent, has cut his ownership in the company he helped found to 20 per cent for an undisclosed fee.

The law requires telecoms firms to have at least 20 per cent local ownership and this means Mr Meralli has lowered his stake to the minimum limit following share sales that have earned him nearly Sh6 billion since 2008.

Altech will own a 8.6 per cent stake in Liquid Telecoms in the share swap transaction, but the disclosure did not reveal how Mr Merali will be compensated for his stake in the company that has been struggling in Kenya’s competitive IT market.

“Altech has concluded agreements relating to various transactions involving Liquid Telecommunication in terms of Altech holding an initial 8.6 per cent of Liquids issued share capital,” said Altech in disclosures to the JSE.

“Post transaction, Liquid will own the following percentages in the various companies —KDN (80 per cent). This places Liquid in a sound position to further develop these businesses,” added the filing.

Liquid operates fibre infrastructure, primarily in southern and central Africa and is majority owned by Econet Wireless Global, the company founded by Zimbabwean telecoms tycoon Strive Masiyiwa.

Mr Masiyiwa is not new to Kenya. He won the rights to launch the country’s third mobile phone network in 2003 under Econet Kenya and in 2008 sold his stake to India’s conglomerate Essar, which launched yu Mobile.

The Kenyan unit has lost market share and sales mainly due to the loss of big contracts including the multi-million shilling contract with Safaricom in 2011 — a move that has seen KDN along with Altech’s West Africa operations hit earnings of the parent company.

Altech has also inked an agreement to sell 75 per cent of its interest in the West African unit.

KDN’s market share dropped to 29 per cent in June from 36.7 per cent in September 2011 based on subscribers, according to data from the Communications Commission of Kenya (CCK), but it remains the top Internet firm in Kenya ahead of Wananchi Telecoms (27 per cent) and AccessKenya (14 per cent).

Altech says KDN needs new capital to boost its Kenyan business that is facing stiff competition from rivals led by Wananchi.

This outlook is what Altech based its decision to sell the 60.8 per cent stake to Liquid, which will create a seamless fibre network across a number of Africa’s countries.

“The combination of Liquid’s and AEA’s network will create the African continent’s largest single terrestrial fibre network connecting more African countries than any other single terrestrial network,” said Altech in the JSE statement.

“The efficiencies which this will create will be considerable and will enable the interconnectivity of the continent in a manner previously unachievable.”

The transaction underlines Mr Merali’s cut back in the IT sector where he has been dominant with significant shares in Airtel, Swift Global and Dimension Data, which he exited in 2009.

The share sales have seen him harvest billions of shillings in capital gains.

The businessman owned 40 per cent of the Airtel (then KenCell Communications) jointly with its French partner Vivendi in 2000.

Smart game

Three years later, when the French firm decided it was time to leave Kenya, Mr Merali used his pre-emption rights to play one of the smartest boardroom chess games that pitted a number of global telecoms giants against each other for Vivendi’s stake.

He bought the Vivendi stake in KenCell at $230 million and sold it to a new partner, Celtel International, the very same day for $250 million— earning a sumptuous profit of $20 million.

In 2008, he sold half of his 40 per cent shareholding to Zain and further reduced it to five per cent, selling the 15 per cent stake in 2009.

He owned KDN through his investment vehicle Sameer ICT, which in 2008 owned 96 per cent of the firm while its former CEO, Kai Wulff, held a four per cent holding.

Altech bought a 51 per cent share in the company in a deal estimated at Sh5.2 billion in the same year before increasing its ownership to 60.8 per cent in 2009.