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 Sh52.2 billion in the year ended December 2020 from Sh46.6 billion 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 Sh1.34 billion 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 Sh1.29 billion in the previous year, as well as converting Sh2.88 billion 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 Sh5.9 billion in 2020 from Sh2.78 billion in 2019.
These losses deepened on the back of increased operating costs, which stood at Sh24.82 billion in 2020. This was a rise from Sh21.27 billion in expenses the previous year. In addition, the firm incurred financing costs of Sh3.12 billion and forex losses worth Sh4.48 billion.
Revenue stood at Sh26.54 billion, up from Sh21.2 billion in 2019.
Airtel, thus, saw its net liability position widen further to Sh43.7 billion in the period, up from Sh37.78 billion 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 Sh10.9 billion, which went up from Sh7.88 billion in 2019, and which it is servicing.
Interest paid on these borrowings stood at Sh2.05 billion in the period, part of total financing costs of Sh3.12 billion in the year.
These loans are owed to HSBC Mauritius (Sh1.64 billion), Citibank (Sh5.4 billion), Standard Chartered Plc (Sh1 billion), JP Morgan (Sh2.19 billion) and a bank overdraft from Standard Chartered Bank Kenya of Sh702.75 million.
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 Sh73.8 billion as at June 2021.
Troubled miller Mumias Sugar’s liabilities exceeded assets by Sh15.9 billion as at December 2018, the last available financial results it has published show. TransCentury was also at a negative equity position of Sh8.4 billion 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 Sh146.9 billion in a taxpayer-funded bailout, where the government will take more than Sh93.4 billion debt owed to multiple suppliers, and give the airline Sh53.4 billion in direct budget support in the fiscal year that ends in June 2022 as well as the one ending June 2023.