Airtel Kenya is surviving on a series of shareholder loans from its parent company, most of which it is unable to service, its financial filings show.
Kenya’s second-biggest telco has revealed that the shareholder loans from its holding firm Bharti Airtel Kenya BV shot up to Ksh52.2 billion ($460.9 million) in the year ended December 2020 from Ksh46.6 billion ($411 million) the previous year — as a result of additional lending, postponement of interest payment (capitalisation) and forex losses on the back of a weaker shilling.
It is the capitalisation of interest due to be paid worth Ksh1.34 billion ($11.8 million) that gives a peek into the cash flow distress facing the firm, given that it effectively means the telco was unable to pay up, forcing the parent firm to add the dues to the principal loan.
Airtel had also capitalised interest worth Ksh1.29 billion ($11.3 million) in the previous year, as well as converting Ksh2.88 billion ($25.4 million) worth of loans to equity to fund a cash injection into its mobile money unit.
These shareholder funds, Airtel said, are a significant contributor to its ability to remain afloat as a going concern, in addition to the revenue generated from operations and other borrowings from external lenders.
"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."
These dollar-denominated loans from Bharti Airtel Kenya BV are supposed to be payable on demand, and are unsecured, carrying an interest charge of three percent per annum.
The dependence on the support of the parent firm reflects the tough financial position the company finds itself in, where losses doubled to Ksh5.9 billion ($52 million) in 2020 from Ksh2.78 billion ($24.5 million) in 2019.
These losses deepened on the back of increased operating costs, which stood at Ksh24.82 billion ($219 million) in 2020. This was a rise from Ksh21.27 billion ($187.8 million) in expenses the previous year. In addition, the firm incurred financing costs of Ksh3.12 billion ($27.5 million) and forex losses worth Ksh4.48 billion ($39.5 million).
Revenue stood at Ksh26.54 billion ($234.3 million), up from Ksh21.2 billion ($187.1 million) in 2019.
Airtel, thus, saw its net liability position widen further to Ksh43.7 billion ($385.8 million) in the period, up from Ksh37.78 billion ($333.5 million) as of March 2020, deepening its insolvent position.
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.
The negative asset position means Airtel would have been unable to meet its financial obligations maturing in 2021, even if it sold all assets that could be readily liquidated.
The telco has other debt owed to international banks totalling Ksh10.9 billion ($96.2 million), which went up from Ksh7.88 billion ($69.5 million) in 2019, and which it is servicing.
Interest paid on these borrowings stood at Ksh2.05 billion ($18 million) in the period, part of total financing costs of Ksh3.12 billion ($27.5 million) in the year.
These loans are owed to HSBC Mauritius (Ksh1.64 billion/ $14.4 million), Citibank (Ksh5.4 billion/ $47.6 million), Standard Chartered Plc (Ksh1 billion/ $8.8 million), JP Morgan (Ksh2.19 billion/ $19 million) and a bank overdraft from Standard Chartered Bank Kenya of Ksh702.75 million ($6.2 billion).
Airtel Kenya’s precarious financial position and dependence on debt injections from the principal shareholder(s) are similar to that of several listed firms in the country, which have been depending on bailouts to survive.
The most visible company in this sort of financial hole remains the national carrier Kenya Airways — known by its international code as KQ — whose negative equity position stood at Ksh73.8 billion ($651.6 million) as at June 2021.
Troubled miller Mumias Sugar’s liabilities exceeded assets by Ksh15.9 billion ($140 million) as at December 2018, the last available financial results it has published show. TransCentury was also at a negative equity position of Ksh8.4 billion ($74 million) as at June 2020.
KQ and Mumias have over the years received billions in bailout money from the government, the largest shareholder in the two firms.
The airline is set to gobble up a further Ksh146.9 billion ($1.2 billion) in a taxpayer-funded bailout, where the government will take more than Ksh93.4 billion ($824.7 million) debt owed to multiple suppliers, and give the airline Ksh53.4 billion ($471.5 million) in direct budget support in the fiscal year that ends in June 2022 as well as the one ending June 2023.