India’s Essar gains full control of Kenya’s telecoms company

Essar Kenya is using commercial law firm Anjarwalla and Khanna to buy out the Kenyan shareholders, who have a 20 per cent stake in it, although it was not clear how much Essar is willing to pay Capital Africa, CrossLink and Startnet companies that are associated with businessmen Peter Kibiriti and Jos Konzolo for the total stake but the deal is estimated to be worth millions of shillings.

Mr Konzolo confirmed that a deal between local shareholders and Essar was in the works but declined to reveal the details pending conclusion.

If successful, the deal should leave India’s Essar and the law firm Anjarwalla and Khanna as the only shareholders in the company. Essar is also known to be hunting for a strategic investor with the ability to pump in money to execute its expansion plan.

Industry regulator, the Communication Commission of Kenya (CCK), said it had received a letter from Essar expressing intention to file a new ownership structure.

When Essar finally files the new structure, the company’s ownership may remain in the hands of two players Essar Telecoms of India and the Nairobi law firm or Essar and another foreign owner represented by Anjarwalla and Khanna holding the shares in Trust.

Anjarwalla and Khana has been Essar Kenya’s lawyer since the Indian firm bought the telecoms licence from Zimbabwean businessman Strife Masiyiwa four years ago.

The change of ownership structure comes against the backdrop of news that Essar Kenya is expecting a big strategic investor early next year.

Essar Group acquired 49 per cent of Econet Wireless International (EWI) in Econet Wireless Kenya — the consortium that won the third mobile licence—and has since raised its shareholding to 80 per cent.

Mr Konzolo, who is a former NSSF managing Trustee, and is associated with the three companies, Capital Africa, CrossLink and Startnet that initially held a 30 per cent stake at Econet Wireless Kenya, said he was working on a new share distribution plan for local owners but could not confirm how it is going to be done and when.

“We are working on the local share distribution but I need to get in touch with my advocates to see how far this has happened,” said Mr Konzolo.

But Essar Telecoms Kenya managing director Atul Chaturvedi denied any knowledge of such shareholders saying that the 20 per cent local share ownership is held by Anjarwalla and Khanna Advocates. He declined to explain how and when Mr Kibiriti and Mr Konzolo sold their shares to the law firm.

A check at Essar Telecoms Kenya Ltd structure ownership at the companies registrar at the Attorney General office by the Business Daily on Friday reveled that there was no registered company in such name while the file of Econet Wireless Kenya Ltd had been removed from the registry and could not be traced.

“We are not selling neither are we in talks with anybody for any buyout,” said Mr Chaturvedi. “These are mere speculations which I have commented on before.”  

Anjarwalla and Khanna Advocates is one of the largest law firms in Kenya specialising on banking, corporate and commercial law, mergers and acquisitions, civil and commercial litigation, admiralty, maritime law and private client work. 

The law firm has more recently been at the centre of mega transactions such as cross-border acquisitions, conducting due diligence and the taking up of security by lenders throughout East Africa.

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.

The Information ministry has, however, allowed new comers to hold more than 80 per cent so long as it returns to the 70 per cent threshold within three years.

Permanent sectary Bitange Ndemo said the Essar Group could take advantage of the three-year window to buy out the local shareholders and bring in a new shareholder when the window closes after three years.

“They are still within the rule that allows an investor to operate and identify a local shareholder within a period of three years,” said Dr Ndemo.

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

Safaricom, Airtel and Orange have announced plans to expand or upgrade their networks - putting pressure on  Essar Telecoms to follow suit.

Market leader Safaricom is, for example, set to launch a Sh4.5 billion bond for the next phase of network expansion while Airtel has doubled its investment in Kenya from Sh12 billion to Sh24 billion in the next 18 months.

Orange has also indicated that it intends to spend between Sh3 and Sh5 billion in network expansion.

Other than Essar Telecoms, the two smaller operators are working on the rollout of the 3G network that should refocus their businesses to data and internet markets as voice revenues decline.

In recent months, local investors appear to have blinked at the prospect of being asked to help recapitalise the companies in readiness for the next round of heavy investments in the telecoms sector.