Mobile carrier Airtel Kenya is reportedly planning an IPO on the Nairobi Securities Exchange, in order to comply with local ownership requirements.
Indian telco Bharti Airtel currently owns 95% of its Kenyan subsidiary and sees an IPO as the best way to…
Mobile carrier Airtel Kenya is reportedly planning an IPO on the Nairobi Securities Exchange, in order to comply with local ownership requirements.
Indian telco Bharti Airtel currently owns 95% of its Kenyan subsidiary and sees an IPO as the best way to comply with regulations which require 20% of the company to be owned by domestic investors, according to the Business Daily.
However, to list on the NSE a company must be profitable for three years and Airtel Kenya continues to make a loss.
Bitange Ndemo, permanent secretary in the Ministry of Information and Communications, was reported as saying that Airtel’s exemption from the 20% local ownership rule would be extended indefinitely, so that the telco can become profitable and then list to meet the requirements.
However, Binta Drave, equity analyst at Exotix, told TelecomFinance that Airtel Kenya would find it challenging to make a profit and it was unlikely it would be able to list until 2017 or later.
“There are two ways which the company could become profitable, either by raising tariffs or reducing their cost base,” she said. “The Bharti Airtel group is good at reducing costs to a minimum so I think they will have already done all they can in that respect. Therefore I think they will have to raise their tariffs”.
When Airtel launched in Kenya, it slashed rates and triggered a price war. But this did not have a long-term impact on the telco’s customer uptake as market leader Safaricom is better in terms of network coverage and product distribution, Drave explained.
Vimal Parmar, head of research at Burbidge Capital, told TelecomFinance that another option for Airtel Kenya could be to list on a different market.
“Since the company is not profit-making, they may want to list on the GEMS (Growth Enterprise Market Segment), which was launched in January 2013 and does not require a firm to be profitable,” he said. “However, this decision fully lies with the board and management of the company”.
However, Drave thought this could still prove problematic for the struggling telco.
“Even if Airtel listed on the GEMS, I think they would struggle to persuade investors to put their money into a loss-making company,” she said. “Airtel’s main challenge will be making a profit.”
Ndemo and Airtel Kenya were unavailable for comment.
