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Airtel eyes Nairobi IPO to meet local ownership limits
Businessman Naushad Merali (left) with Bharti Airtel CEO, international operations and joint managing director Manoj Kholi at a past function. Airtel plans to go public to help comply with local ownership regulations. File
Airtel Kenya plans to sell at least a 15 per cent stake to local shareholders through the Nairobi Securities Exchange (NSE) to meet the set local ownership limits.
India’s Bharti Airtel, which owns 95 per cent of the mobile phone operator, says the initial public offering (IPO) is best route to bring the company in full compliance with ownership regulations that require telcos to maintain at least 20 per cent local shareholding.
This is the pitch that the firm made to the Information ministry while seeking an exception from the rule as an earlier immunity expires this month, according to Information PS Bitange Ndemo.
The Indian telecoms operator argued that finding a buyer for the 15 per cent stake worth about Sh6 billion was difficult given the business is yet to make a profit since it was acquired three years ago.
The government has agreed to a fresh exemption that will not be limited to a determined period since Airtel can only list at the NSE after posting profits for three consecutive years in line with regulatory requirements.
“I have already done a letter allowing for this (extension for the exemption) and the minister (Samuel Poghisio) would sign it anytime he resumes office,” said Dr Ndemo.
“The ministry acknowledged the fact that it is not easy for Airtel to get investors who can buy a stake with its current performance and it’s only listing at the NSE that can help them meet the law. The extension period runs until they meet the threshold to list.”
Should it go public, Airtel will join its top rival Safaricom and AccessKenya in the list of telecoms companies that are listed at the Nairobi bourse. Access Kenya went public in 2007 while Safaricom listed in 2008.
In December, the firm said it would turn a net profit in the next two years — meaning the earliest it can list at the NSE is 2018. Bharti has been racing to turn around the Kenyan unit since buying the firm in mid-2010.
The earnings outlook of Kenya’s mobile phone operators’ performance has been worsened by the halving of call tariffs in August 2010.
Mr Poghisio put the telecom operator in the ownership tight spot with his decision to grant businessman Naushad Merali (the then only local shareholder in Zain) permission to sell 15 per cent of his 20 per cent stake in the firm to foreign investors.
The 15 per cent stake is now estimated to be worth nearly Sh6 billion based on the $63.75 million (now Sh5.5 billion and then Sh4 billion) that Mr Merali earned when he sold the equivalent stake to Zain Group six years ago and would be corporate Kenya’s biggest share transaction in five years if successful.
Mr Merali sold the 15 per cent stake in the then Zain Kenya to Kuwait-based Zain Group, which in June 2010 sold its African interests to India’s Bharti Airtel.
The Ministry of Information extended by one year, the exemption which would have lapsed in the first quarter of last year, based on the 2009 deal. Finding a local investor with Sh5 billion to spend in the transaction has not been a mean task for Bharti Airtel.
“It may not be easy for Airtel to attract local investors, the major challenge being that the company is not profitable,” said Eric Musau, a research analyst at Standard Investment Bank in an earlier interview.
“The process of agreeing on a reasonable valuation of the shares in such circumstances is enormous.”
Safaricom controlled 80.7 per cent market share in terms of voice traffic in the year to June while Airtel’s and Essar’s stakes stood at 10.9 per cent and 7.7 per cent respectively.
To attract new investments into the sector, regulation capping foreign ownership of telecoms companies at 80 per cent in 2009 was relaxed to allow foreigners to launch operations without a local partner and then find them in three years.
The rule also applies to firms that are facing difficulties raising capital from local shareholders who may seek exemption to allow the Kenyan investors dilute their stake below 20 per cent for the new buyers to inject capital.
This change of regulation is what allowed Mr Poghosio to let Mr Merali sell a significant portion of his stake in the firm without contravening the law.
Three years later, when the French firm decided it was time to leave Kenya, Mr Merali used his pre-emption rights to stage one of the smartest boardroom chess games that played 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 stake to Zain and further reduced it to five per cent with the 15 per cent sale in 2009.
