Kenya: Essar Group Seeks to Sell Off Mobile Business, Four Years Later

Mergers, Acquisitions and Financial Results

India's Essar Group, which owns the yu mobile business, plans to exit the Kenyan mobile telephony business, two and a half years after its entry. The operator is said to be looking for suitors to buy its business, according the Economic Times of India and sources familiar with the matter.

The local market has been fluid since late last year when Bharti Airtel entered the market and went flat out on cutting calling rates, which have slashed revenues for operators. yu has since its entry into the local market faced stiff competition from larger rivals Safaricom, Airtel Kenya and Telkom Kenya.

Safaricom, the market leader, recently registered a 13 per cent drop in profit, while Telkom and Airtel are yet to record profits. Recently, the Indian company admitted that it would be pulling out of the long-standing agreement to acquire telecom assets of Warid Telecoms in Uganda and Congo.

"It was mutually decided between the partners - Essar and Warid Group - not to proceed with the deal closure as certain condition precedents pertaining to government clearance were not met," Essar Group's Rabin Ghosh said in a statement. However, Essar denied it intended to sell its Kenyan business.

"Essar remains committed to the African market and is satisfied with its operations in Kenya," Mr Ghosh, based in Mumbai, said in a statement.

In March this year, the firm, controlled by Indian billionaire brothers Shashi and Ravi Ruia, agreed to sell its 33 per cent stake in Vodafone Essar, to UK-based Vodafone.

A report released on Monday by a taskforce appointed by Prime Minister Raila Odinga to study the mobile phone market says apart from Safaricom, the rest of the operators have been making losses, which poses uncertainty on the sustainability of future trading as going concerns.

"As at March 31, 2010 Essar Telkom's current liabilities exceeded current assets indicating to the auditors that there was prima facie, a material uncertainty on the company's ability to continue as a going concern," said a report by the taskforce, chaired by Silvester Kasuku, an infrastructure specialist at the PM's office.

However, the auditors say such a situation is normal for new telecom companies in its initial phase, when there is heavy capital expenditure and lower revenue in the initial months.

In its African expansion spree, in November 2009, Essar agreed to buy a majority stake in the Warid Group's interests in Uganda and the Republic of Congo. Reports indicate that some regulatory issues have not been met, perhaps the reason behind the pullout.

In Kenya, Essar Group had bought the unit from Econet Wireless for Sh12 billion ($150 million) and invested Sh8 billion ($100 million) in the operation. Reports say that the firm has eyes on Bharti Airtel and South Africa's MTN and is looking to dispose of the Kenyan unit for Sh24 billion ($300 million).

In March this year, yu changed its top management, picking Madhur Taneja to head the operation. He replaced Atul Chaturvedi. Earlier in the year, the firm terminated its contract with Aegis Services Kenya Ltd, a subsidiary of Essar Group and opted for Horizon Contact Centre to handle its call centre services.