Airtel Kenya Struggling to Remain Afloat as it Runs on Shareholder Loans

Airtel Kenya is struggling to remain afloat by depending on shareholder loans it is unable to service from its holding firm, Bharti Airtel.

The telco’s financials show that Airtel Kenya is unable to service the loans from Bharti Airtel Kenya BV, which increased from 46.6 billion shillings in the year ended December 2019 to 52.2 billion shillings in the year ended December 2020.

The shooting up of the loans was a result of additional lending, capitalization of interest, and losses from forex due to a weakening shilling.

The postponement of interest by Kenya’s second-largest telco (due to be paid 1.34 billion shillings) is what hints of the financial troubles the firm is going through.

Since Airtel Kenya couldn’t settle the interest, the parent company was forced to add the dues to the principal loan amount.

The firm had also capitalized interest amounting to 1.29 billion shillings in the previous year on top of converting 2.88 billion shillings worth of loans to equity. The equity was used to fund cash injection into its mobile money unit.

The telco acknowledged that the shareholder funds are fundamental in ensuring it remains afloat in addition to the revenue generated from operations and other borrowings from external lenders. But its dependence on them is a growing concern.

“The company will be able to obtain from the shareholders any additional funding required to meet its obligations as and when they fall due. A commitment to this effect from the major shareholders has been obtained by the company,” said Airtel.

“The directors are confident that the funds… will be available to the company to support its obligations as required.”

The dollar-denominated loans obtained from Bharti Airtel Kenya BV are payable on demand, and are unsecured, carrying an interest charge of 3 percent annually.

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Airtel Kenya’s dependence on the parent company to remain operational speaks much about its tough and current financial position.

Airtel Kenya sunk into losses for the financial year ended March 2021 with a loss of 5.9 billion shillings. The company now has a cumulative loss of 77.41 billion shillings.

These losses deepened on the back of increased operating costs, which stood at 24.82 billion shillings in 2020.

This was a rise from 21.27 billion shillings in expenses the previous year. In addition, the firm incurred financing costs of 3.12 billion shillings and forex losses worth 4.48 billion shillings.

The net liability for Airtel Kenya, therefore, rose to 43.7 billion shillings in the full year to March 2021, up from 37.78 billion shillings as of March 2020.

The recent loss is the largest in its history having halved the loss to 2.78 billion shillings in 2019, up from 5.8 billion in 2017 shillings.

Its auditors Deloitte expressed concern that the negative equity position combined with deepening losses raise doubts over the firm’s ability to continue as a going concern.

By operating on negative assets, the company wouldn’t be able to meet its financial obligations even if it sold all its assets.

Worse still, Airtel Kenya owes other international banks amounts totaling 10.9 billion shillings, which rose from 7.88 billion shillings in 2019. It is still servicing this facility.

The telco owes HSBC Mauritius, 1.64 billion shillings; Citibank, 5.4 billion; Standard Chartered Plc, 1 billion shillings; JP Morgan, 2.19 billion shillings; and a bank overdraft from Standard Chartered Bank Kenya of 702.75 million shillings.

The interest paid on these debts stood at 2.05 billion shillings in the period, part of total financing costs of 3.12 billion shillings in the year.