- Kenya’s second largest telecom operator has revealed that shareholder loans from its holding company Bharti Airtel Kenya B.V. rose to Sh52.2 billion in the year to December 2020.
- Airtel said these shareholder funds contribute significantly to its ability to remain afloat as a going concern, in addition to revenue generated from operations and other loans from external lenders.
Financial filings show Airtel Kenya is living off a series of shareholder loans from its parent company most of which are unable to provide the service.
Kenya’s second largest telecom operator revealed that shareholder loans from its holding company Bharti Airtel Kenya B.V. jumped to Sh52.2 billion in the year to December 2020 from Sh46.6 billion in the previous year – as a result of additional lending, interest payment deferral (capitalization) and forex losses on the back of Double shilling.
The capitalization of the payable interest of Sh1.34 billion gives a peek into the cash-flow distress facing the company, as it effectively means the carrier has been unable to pay, forcing the parent company to add receivables to the underlying loan.
Airtel also capitalized Sh1.29 billion in interest in the previous year, as well as converting Sh 2.88 billion of loans into equity to fund a cash injection into its mobile money unit.
Airtel said these shareholder funds contribute significantly to its ability to remain afloat as a going concern, in addition to revenue generated from operations and other loans from external lenders.
“The company will be able to obtain from shareholders any additional financing required to meet its obligations as they fall due. The company has secured commitment to this effect from the major shareholders,” Airtel said.
“Managers are confident that the funds … will be available to the company to support its obligations as required.”
These dollar-denominated loans from Bharti Airtel Kenya BV are supposed to be payable on demand, are unsecured, and carry interest at three percent per annum.
The reliance on the parent company’s support reflects the difficult financial situation the company finds itself in, as losses doubled to Sh5.9 billion in 2020 from Sh2.78 billion in 2019.
These losses were exacerbated by the increase in operating costs which amounted to Sh24.82 billion in 2020. This was up from the Sh21.27 billion expenditure last year. In addition, the company incurred financing costs of NIS 3.12 billion and foreign currency losses of NIS 4.48 billion.
Revenue was Sh26.54 billion, up from Sh21.2 billion in 2019.
Consequently, Airtel saw its net liability position widening to Sh43.7 billion from Sh37.78 billion in March 2020, deepening its insolvency status.
Deloitte’s auditors expressed concern that the stock’s negative position coupled with deep losses raises doubts about the company’s ability to continue as a going concern.
The negative asset position means that Airtel was unable to meet its financial obligations due in 2021, even if it sold all the easily liquidated assets.
The telecom company has other debts owed to international banks totaling Sh10.9 billion, which it is servicing from Sh7.88 billion in 2019.
The interest paid on these loans amounted to NIS 2.05 billion in the period, which is part of the total financing costs of NIS 3.12 billion per year.
These loans are owed to HSBC Mauritius (1.64 billion shillings), Citibank (5.4 billion shillings), Standard Chartered plc ( 1 billion shillings), JPMorgan (2.19 billion shillings) and an overdraft from Standard Chartered Bank Kenya amounting to 702 shillings. 75 million.
Airtel Kenya’s precarious financial situation and its reliance on debt injections from major shareholder(s) are similar to that of many of the country’s listed companies, which have been dependent on bailouts for survival.
Still the most visible company in this type of financial loophole is Kenya Airways – better known by its international code as KQ #ticker: KQ – which had a negative equity position of Sh73.8 billion in June 2021.
The liabilities of the troubled Mummias Sugar Mills company exceeded assets by Sh15.9 billion in December 2018, shows the latest available financial results it has published. TransCentury was also in a negative ownership position of Sh8.4 billion in June 2020.
KQ and Mumias have over the years received billions of bailout money from the government, the largest shareholder in the two companies.
The airline is set to devour an additional Sh146.9 billion in a taxpayer-financed bailout, as the government will take out more than Sh93.4 billion in debt owed to multiple suppliers, and give the airline Ksh53.4 billion in direct budget support in the fiscal year that ends in June. 2022 as well as the fiscal year ending June 2023.