Telecoms operator Safaricom #ticker:SCOM is likely to write off a Sh1.5 billion debt owed by rival telcos Telkom and Airtel after it made provisions for loss of the funds.
Telkom and Airtel owe Safaricom for using its infrastructure known as co-location and interconnection fees from cross-network calls.
Safaricom said they have to provision on a conservative basis when there are delays in collecting dues which increased the firm’s expected loss.
“On expected loss, yes, I think we spoke about this in H1 as well we did see the accumulation of losses from Telkom Kenya, and overall co-location and interconnect all put together is the amount of about 1.5 billion, so that’s the major chunk of the increase in expected loss you may have seen compared to last year,” Safaricom Chief Finance Officer Dilip Pal said.
Provisioning is an accounting practice where companies set aside part of their profits when they expect a decrease in the value of their assets as is the case when they are unable to collect a debt.
Safaricom did not reveal the breakdown of how much each of its rivals owes it. In an earlier letter to the Communications Authority of Kenya (CA) before the failed merger of its rivals, Safaricom had disclosed that Telkom and Airtel owed it Sh906.6 million and Sh390.7 million respectively for interconnection, co-location, and fibre services it rendered to them.
Part of the debt stems from interconnection fees which Safaricom indicated in the annual report it expects a credit loss of Sh664 million.
The rest is accumulated losses from renting out its stations to other operators known as co-location.
Safaricom earned Sh4.9 billion in interconnection fees for the year to March 2020 compared to Sh4.6 billion the previous year.
The telco made Sh1.8 billion in co-location fees in a similar period up from Sh1.7 billion in 2019, according to its annual report.
It is not clear whether Safaricom plans to pursue its rivals through court action or the regulator, CA.
Telkom said they had a payment plan in place and would repay the debt while Airtel did not respond to emailed inquiries by the time of going to press.
“Telkom has an agreed-upon payments schedule with Safaricom; one that we are honouring and up to date with,” Telkom CEO Mugo Kibati said.
Safaricom has previously raised the issue of legacy debts whenever its rivals attempted mergers and acquisitions.
The company raised it again during the failed attempt to merge Telkom and Airtel when its then-acting CEO Michael Joseph wrote to the Communications Authority of Kenya demanding Sh1.2 billion before approving the deal.
Mr Joseph said that since Airtel explicitly said it would not take up Telkom’s liabilities it would be difficult to chase those debts after the merger.
In 2015 Safaricom also temporarily blocked the sale of Orange Group’s majority stake in Telkom Kenya to UK-based, Africa-focused private equity firm Helios Investment Partners, over concerns that it would not be able to recover the funds it was owed by Telkom.
The company said it was apprehensive of not being able to recover the Sh639.8 million it is owed by Telkom Kenya if Orange Group transferred a 70 percent stake to Helios.
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