Airtel set to buy Telkom, targets May/June for IPO

Bharti Airtel is in talks to buy Telkom Kenya, which will help the Sunil Mittal-led telco emerge stronger in the east African market and improve overall valuation of Airtel Africa in the run-up to its initial public offer (IPO), likely in May-June, people aware of the development said.

Telkom Kenya is the third-largest telco in Kenya with over five million users, behind market leader Safaricom with over 30 million and Airtel Kenya, with 10 million-plus customers. It is 60 per cent owned by UK private equity firm Helios Investment Partners and the rest by Kenya’s government.

According to Economic Times (ET) of India, Bharti Airtel is learnt to be in preliminary talks with Helios, though it will probably inform the Kenyan telecom regulator only if discussions lead towards a potential deal, said one of the persons cited above.

A Bharti Airtel spokesman declined comment and ET’s queries to Helios Investment did not elicit a response as of press time.

The Bharti Airtel scrip dipped marginally by 0.64 per cent to close at ₹331.90 on BSE.

The latest deal overtures come in the aftermath of Airtel Africa recently raising $1.25 billion (about ₹9,200 crore) by placement of shares to six global investors, which will be followed by an Airtel Africa IPO, through which the telco plans to garner an additional $1.5-1.6 billion.

Sector experts though said the actual impact on Airtel Africa’s valuation will hinge on the premium Airtel pays to buy a controlling stake in Telkom Kenya.

Head of India and Middle East, Analysys Mason, Rohan Dhamija, said any potential Airtel takeover of Telkom Kenya “will increase Airtel Africa’s overall valuation” as it would “be value-accretive, given the scale driven synergies, which are so important in the Africa market.”

Former Airtel chief executive, Sanjay Kapoor, said the degree of improvement in Airtel Africa’s overall valuation would hinge on a host of factors, “including the quantum of premium Airtel actually pays to buy Telkom Kenya, synergies that get drawn by virtue of such a consolidation and the level of pricing power gained in the Kenyan telecom market.”

Between September 2017 and September 2018, Airtel Kenya’s subscriber base jumped nearly 71 per cent to over 10.4 million, lifting its overall market share 7.4 percentage points to 22.3 per cent. Safaricom has a market share of some 65 per cent.

Insiders familiar with the matter said growth for Airtel Kenya had been driven by a combination of higher voice, mobile data and money transfer transactions in the eastern African country.

Airtel Africa is the UK-based holding company of Bharti Airtel’s operations in 14 countries in the continent.

Airtel is the second-largest telco in the continent with a customer base of some 94 million and ranking among the top two in most markets.

Airtel Africa has seen a turnaround in recent years, in a clear departure from before, when losses mounted every quarter, dragging down consolidated numbers and casting doubt on Bharti’s strategy of expanding into the continent in 2010. Africa earnings have been supporting Airtel’s consolidated financials.