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Airtel risks forced sale in expired licence row

The State has ordered Airtel Kenya to pay $20.025 million (Sh2.15 billion) for its expired licence to be exempted from a rule that requires telecoms operators to sell a 30 percent stake to local investors within the next three years.

Joe Mucheru, the ICT Cabinet Secretary, said Airtel must first renew its licence that expired in February 2015 before entering talks with the government for a waiver of the local ownership rule.

Airtel Kenya is locked in a court stalemate with the Communications Authority of Kenya (CA) over the renewal of its operating licence, with the regulator insisting that the firm must pay the permit fee of Sh2.1 billion to stay in business.

In the meantime, Airtel is operating on a licence acquired along with Essar’s (yuMobile) assets in a deal concluded in 2014.

“If they are operating without a licence, how do we even grant them an exemption? We are still in court with them. I cannot give permission if they have not paid the licence fee,” Mr Mucheru told the Business Daily in a phone interview.

“They (Airtel) have to go to the regulator to get a licence. The regulator will have to show that they have met all rules except that they are not able to find local investors if that is the case. Then the Communications Authority of Kenya can write to me for exemption.”

This looks set to escalate the licensing row that has dragged in court for the past six years.

Airtel maintains that the CA had agreed to merge its operating licences with the ones it purchased from Yu Mobile in 2014 for the $6.976 million (Sh752 million) it paid to acquire the rival firm. The Yu Mobile licence is to expire on January 27, 2025.

Airtel claims that upon its purchase of Yu Mobile spectrum and frequencies, the CA changed its earlier position and demanded an additional Sh2.15 billion as a condition for renewing its operating permits.

Airtel earlier told the court that it would have abandoned the Yu Mobile deal had the regulator disclosed it would demand separate spectrum fees of Sh2.15 billion. The row moved to the Court of Appeal.

The CA maintains that the Yu Mobile licence Airtel is currently operating under was not automatically transferable.

The tough stance by the government signals that India’s Bharti Airtel must pay the Sh2.1 billion or sell the 30 per cent of its stake in Kenya’s second largest telecoms operator to a local to avoid getting into trouble with the regulators.

The mandatory share sale is to bring the firm in full compliance with ownership regulations that require telecoms companies to maintain at least 30 per cent local shareholding.

Mr Mucheru on April 9 unveiled a licensing policy that has given telecoms firms up to March 2024 to comply with the rule meant to encourage local ownership of ICT firms.

He also increased the local ownership threshold from a minimum of 20 per cent, a cap that has been in place since 2008.

A few firms, including Airtel, have been exempted from the shareholding rule, a window that let billionaire investor Naushad Merali to sell a significant portion of his shareholding in the firm worth billions of shillings without contravening the law.

Mr Mucheru has directed firms that had secured waivers on the local ownership rule to comply within three years.

Airtel, which has remained in losses since launching Kenya operations in 1999, considers the Sh2.1 billion licence fee too high.

Its losses in the year to March last year stood at Sh5.61 billion. Safaricom recorded a net profit of Sh74.6 billion in the same period.

Airtel’s difficulties in finding a buyer for the stake has been linked to the mismatch between the company’s valuation and local investors’ assessment of its worth based on the position that the business remains in the loss-making territory.

This position is what prompted the State to offer Airtel an open-ended waiver on the local ownership rule.

Mr Merali, who initially owned 40 per cent of Airtel, has used the waiver window to sell his shareholding in the firm.

Airtel has signalled its intention to seek a waiver to the latest order on the 30 per cent local ownership rule.

“Airtel Networks Kenya Limited shall have discussions on the policy with the relevant authorities and will abide with the relevant requirements prior to any public disclosure,” Airtel Kenya CEO Prasanta Das Sarma told the Business Daily in an email response.

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