- Kenya’s second-largest telecommunications company revealed that shareholder loans from its holding company Bharti Airtel Kenya BV reached 52.2 billion shillings in the fiscal year ended December 2020.
- These shareholder funds, Airtel said, contribute significantly to its ability to stay afloat as a going concern, in addition to income generated from operations and other borrowing from external lenders.
Airtel Kenya is surviving on a series of shareholder loans from its parent company most of whom are unable to manage, according to its financial records.
Kenya’s second-largest telecommunications company revealed that shareholder loans from its holding company Bharti Airtel Kenya BV reached 52.2 billion shillings in the fiscal year ended December 2020, compared to 46.6 billion shillings l previous year – due to additional loans, deferred interest payments (capitalization) and exchange losses on the back of a weaker shilling.
It is the capitalization of interest payable of 1.34 billion shillings that gives a glimpse of the cash flow distress the company is facing, as this in effect means that the telephone company does not was unable to pay, forcing the parent company to add contributions to the main loan.
Airtel had also capitalized interest worth 1.29 billion shillings the previous year, as well as converting 2.88 billion shillings of loans into equity to fund a cash injection into its silver unit. mobile.
These shareholder funds, Airtel said, contribute significantly to its ability to stay afloat as a going concern, in addition to income generated from operations and other borrowing from external lenders.
“The company will be able to secure from shareholders any additional financing necessary to meet its obligations as they fall due. A commitment to this effect from major shareholders has been secured by the company,” Airtel said.
“The directors are confident that the funds… will be available to the company to support its obligations as needed.”
These dollar denominated loans from Bharti Airtel Kenya BV are meant to be repayable on demand and are unsecured, with interest of 3% per annum.
The reliance on parent company support reflects the difficult financial situation the business finds itself in, where losses doubled to 5.9 billion shillings in 2020 from 2.78 billion shillings in 2019.
These losses were compounded by the increase in operating costs, which amounted to 24.82 billion shillings in 2020. This was an increase from expenditure of 21.27 billion shillings. the previous year. In addition, the company incurred financing costs of 3.12 billion shillings and foreign exchange losses valued at 4.48 billion shillings.
Turnover was 26.54 billion shillings, compared to 21.2 billion shillings in 2019.
Airtel thus saw its net debt position widen further to 43.7 billion shillings during the period, from 37.78 billion shillings in March 2020, worsening its insolvency position.
Its auditors, Deloitte, have expressed concern that the negative equity position combined with worsening losses raise doubts about the company’s ability to continue operating.
The negative asset position means Airtel would not have been able to meet its financial obligations due in 2021, even if it had sold all the assets that could be easily liquidated.
The telephone company has other debts to international banks totaling 10.9 billion shillings, up from 7.88 billion shillings in 2019, and which it provides service.
Interest paid on these loans amounted to 2.05 billion shillings during the period, forming part of the total financing costs of 3.12 billion shillings during the year.
These loans are due to HSBC Mauritius (Sh 1.64 billion), Citibank (Sh 5.4 billion), Standard Chartered Plc (Sh 1 billion), JP Morgan (Sh 2.19 billion) and to a bank overdraft of Standard Chartered Bank Kenya of 702 Sh. 75 million.
Airtel Kenya’s precarious financial situation and its reliance on debt injections from major shareholder (s) are similar to that of several listed companies in the country, which depend on bailouts for survival.
The most visible company in this kind of financial hole remains the national carrier Kenya Airways – known by its international code as KQ #ticker: KQ – whose net negative position stood at 73.8 billion shillings in June. 2021.
Ailing miller Mumias Sugar’s liabilities exceeded assets by 15.9 billion shillings in December 2018, the latest available financial results he released show. TransCentury also had a negative equity position of 8.4 billion shillings in June 2020.
Over the years, KQ and Mumias have received billions of dollars in bailouts from the government, the largest shareholder of the two companies.
The airline is set to swallow an additional 146.9 billion shillings as part of a taxpayer-funded bailout, in which the government will take more than 93.4 billion shillings in debt owed to several vendors, and grant to the airline 53.4 billion shillings in direct budget support for the fiscal year ending June 2022 as well as the fiscal year ending June 2023.