Mobile carrier Essar Kenya has received a Sh13.05bn (US$150m) capital injection from its parent company, India’s Essar Group, to pay off its debts.
Essar Kenya, which operates under the brand Yu, has been running up huge interest costs from bank loans…
Mobile carrier Essar Kenya has received a Sh13.05bn (US$150m) capital injection from its parent company, India’s Essar Group, to pay off its debts.
Essar Kenya, which operates under the brand Yu, has been running up huge interest costs from bank loans but will now be able to finance its expenses, said yuMobile CEO Madhur Taneia in a local media report.
“We have paid off all our debts for the existing business,” said Taneia. “That is the biggest burden for any telecom. We do not have any debt at all, it’s all equity.”
Back in October TelecomFinance reported that the struggling telco is said to be looking to borrow up to US$200m (Sh16.8bn) in order to finance expansion plans.
The company expects to receive a Sh8.7bn (US$100m) loan in March for capex and has identified international banks where they can get dollar-denominated loans with interest of around 7%, said Taneia in the report.
BNP Paribas are advising Essar Kenya on the possible funding, which will be invested in expanding Yu’s voice, data and mobile money services, he said.
Binta Drave, Equity Analyst at Exotix, told TelecomFinance in October that she thought Essar Group, which owns a 80% stake in Essar Kenya, is still happy to invest in the company.
“[Essar Kenya’s] competitors Airtel and Orange Kenya are also loss-making,” she commented. “The only way these companies can finance their operations is to rely on their parent company or borrow money.
“Orange Telecom was in a similar situation a few months ago where they had to secure a loan and I think we will see more of this kind of thing in the Kenyan telecoms industry.”
Essar has a 7.7% market share of the Kenyan market compared to market leader Safaricom which has 80.7%.
“Telecoms is a capital-intensive industry and you need to invest in new technology to compete effectively,” added Drave. “Safaricom is the only profitable telco in Kenya and they have been offering Blackberry services for years, whereas Essar Kenya only launched this recently for example.”
