Billionaire businessman Naushad Merali sold off his remaining five per cent stake in telecommunications company Airtel Kenya four years ago, giving the Indian parent company Bharti Airtel full control of the firm.
The previously unreported transaction, which earned Mr Merali Sh738 million, happened shortly after former Finance minister Njeru Githae gave Airtel Kenya an open-ended waiver on the law requiring telecommunication companies to have at least 20 per cent local ownership in 2012.
Airtel Kenya is now fully-owned by Bharti Airtel, having benefited from similar waivers in the past that saw the Indian company accumulate its stake in the telco.
“On February 24, 2011, the Group acquired five per cent of the voting shares of Airtel Networks Kenya Limited increasing its ownership to 100 per cent,” reads the Bharti Airtel annual report for 2011/2012 seen by the Business Daily this week.
Both Airtel Kenya and Mr Merali did not respond to our requests for comment on the report, which is coming into the public limelight for the first time.
The annual report shows that Airtel has been in breach of the local ownership rule, which still remains a condition for other telcos operating in Kenya, and is relying on the open-ended waiver by Mr Githae.
Airtel has said previously that it has had difficulty finding Kenyan buyers of the stake.
In 2009, Mr Merali earned approximately Sh5.3 billion from the sale of his 15 per cent stake in the company to Kuwait-based Zain Group, which in June 2010 sold its African interests to Bharti Airtel.
“A cash consideration of 503 million Indian Rupee was paid to the non-controlling interest shareholders,” the report revealed.
During the period under review, the report noted that the value of the net assets of Airtel Networks Kenya Limited (excluding goodwill on the original acquisition) was Sh972 million (662 million Indian Rupees).
The sale of the remaining five per cent may have been part of Mr Merali’s exit plans from the company: He relinquished the position of chairman last year after being at the helm for 15 years.
Bharti Airtel appointed former Kenya Airways CEO Titus Naikuni as the Airtel Kenya chairman in November, following Mr Merali’s retirement.
To attract new investments into the sector, the regulation capping foreign ownership of telecom companies at 80 per cent was in 2009 relaxed to allow foreigners to launch operations without a Kenyan partner and gradually comply by finding local partners within three years.
The rule also applies to firms that are facing difficulties in raising capital from local shareholders who may seek exemption to allow Kenyan investors to dilute their stake below 20 per cent for new buyers to inject capital.
This change in regulation is what allowed former Information minister Samuel Poghosio to let Mr Merali sell a significant portion of his shareholding in Airtel (then Zain) without contravening the law.
Mr Merali has reaped billions of shillings in capital gains selling his Airtel Kenya shares over the years.
The businessman owned 40 per cent of the company when his investment firm, Sameer Group, jointly launched KenCell Communications with its French partner, Vivendi, in 2000.
Three years later, when the French firm decided it was time to leave Kenya, Mr Merali used his pre-emptive 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 healthy 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.
Airtel has found it difficult to shake the dominance of rival telco Safaricom despite setting off a fierce price war that has partly contributed to the current low calling rates.
Airtel has 5.5 million subscribers, Telkom Kenya has three million subscribers, yuMobile 2.2 million and Safaricom 21.8 million, according to the latest industry statistics.
The Indian-owned telco is betting on Mr Naikuni to help drive its strategy in the local market where it has taken over subscribers of yuMobile in an effort to raise its market share.
The sale of the five per cent share held by Mr Merali at Airtel Kenya adds on to the major sell-offs Mr Merali made in the ICT sector in the recent past, in what has been linked to cut-throat competition from new entrants in the telecoms business.
In 2013, Mr Merali ceded his entire 49 per cent stake in Internet service provider Swift Global and 19.2 per cent equity in fibre infrastructure firm KDN to British firm Liquid Telecom.
After the deal, he retained a minority stake (about 20 per cent) in Liquid, formerly known as KDN. Merali founded the two firms more than 10 years ago.
But as the field became more crowded with the entry of new players such as Jamii Telecom, Safaricom, AccessKenya, MTN and Wananchi, the Merali firms’ market share diminished pushing some into loss-making territory.
yuMobile, also owned by Indian conglomerate Essar, exited the Kenyan market last year after failing to reverse its loss-making streak, with Safaricom acquiring its infrastructure as part of the joint buyout with Airtel.
The firm also had challenges with its local owners, who from time to time could not meet shareholder cash calls.
The exit of yuMobile has reduced the number of mobile network operators to three, with France Telecoms that owns 70 per cent in Telkom Kenya also scouting for potential investors.
The plan has however been put on hold after France Telecoms claimed recently that they have lost control of the firm to the government of Kenya, which owns 30 per cent stake of the company.
Until November 2012, the government had a 49 per cent stake in Telkom Kenya while France Telecom held the remaining 51 per cent.
The Kenyan government, however, ceded a nine per cent stake to France Telecom in December 2012 through a Sh30 billion debt write-off and shed another 10 per cent stake in June last year after it failed to contribute its Sh2.4 billion share in a Sh10 billion rights issue.
This last dilution caused a public uproar, with Members of Parliament claiming that taxpayers lost at least Sh30 billion in the conversion of shareholder loans to equity.