2019, a rocky year for registered companies

Written By: Fiona Churu
266

2019, a rocky year for registered companies
Telkom Kenya CEO Mugo Kibati is poised to serve as chairman of the new entity, while Airtel Kenya Managing Director Prasanta Sarma chief executive. 

This year has been rocky for companies registered in Kenya.

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And while some have made efforts to endure and remain afloat, some were forced to fold their operations.

In February 2019, the second and third largest mobile service companies in Kenya announced the signing of a binding agreement setting in motion plans to set up a joint venture company, Airtel-Kenya.

This caused ripples in the telecommunication sector as analyst backed the consolidation strategy to challenge Safaricom’s two-decade run as the most dominant service provider.

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Communications Authority fourth quarter statistics ending June 2019 indicate that Safaricom controlled 63.5% of the market share translating to 33.1 million subscribers.

Airtel came in second with 12.8 million subscribers or 24.6% of market share.

Telkom Kenya comes third with 4.2 million subscribers translating to 8.1 per cent of the market share.

The combined entity, Airtel-Kenya would have a market share of 32.7%.

However, it was not all applause for the deal as opposition arose.

First, from Safaricom who called clearance of debt it is owed by the two operators before the deal is given a green light.

Safaricom indicated that the said debt amounted to Kshs 1.3 billion shillings incurred for the provision of interconnection, co-location and fibre services.

Safaricom demanded the debt obligations should be settled in full before the transfer of business is affected.

Safaricom also demanded CA rebalances the frequencies allocation after the merger given that the Joint Venture Company Airtel-Telkom will hold 77.5 MHz of the spectrum against a customer base of 17 million, compared to Safaricom’s 57.5 MHz with a customer base of 31.8 million.

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Similarly, the firm called for equal treatment of operators and the creation of a level playing field when it comes to licensing and operation requirements.

Parliament also questioned the nature of the deal and its effects on industry and employees.

CA hinted to back the deal in a Kenya Gazette Notice after the two met set conditions. EACC also rejected the merger pending investigations into past dealings.

The deal, however, received a shot in the arm from the Competition Authority of Kenya early December provided the entity does not make any new form of sale agreements within the next five years.

And should the Airtel-Telkom show signs of failure, the CA is obligated to commence a forensic audit at the expense of the firm.

Telkom Kenya is also to reverse its 900 megahertz (MHz) and 1800MHz frequencies back to the state when the licenses expire.

Telkom Kenya CEO Mugo Kibati is poised to serve as chairman of the new entity, while Airtel Kenya Managing Director Prasanta Sarma chief executive.

The banking sector also experienced consolidation by two major players in the industry, Commercial Bank of Africa and National Industrial Credit Group.

In a Kenya Gazette notice dated 27th September 2019, the Central Bank of Kenya and the National Treasury approved the merger of NIC Group and Commercial Bank of Africa (CBA) paving way for the formation of NCBA Group.

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The new entity now controls a market share of 10.67 per cent making it the second-largest bank in Kenya.

NCBA Group is also the third-largest bank in terms of assets with Kshs 444 billion.

At the end of October the new financial services group, NCBA Group, listed 793.8 million new shares on the Nairobi Securities Exchange.

Managing Director John Gachora said the next phase of the merger would be the integration of the businesses in Tanzania, Uganda and Rwanda, that is subject to specific regulatory approvals.

Similarly, in September CBK approved 100 per cent acquisition of troubled National Bank of Kenya by KCB Group.

The regulator Okayed the takeover terming it key in strengthening both institutions leveraging on their respective well-established domestic and regional corporate, public sector and retail franchises.

KCB had initially received acceptances from shareholders for 262.97 million shares, equivalent to 77.62 per cent of NBK’s total of 338.8 million issued shares.

Nonetheless, the Competition Authority of Kenya in approving the deal barred KCB from firing NBK employees after the merger of the two lenders for a period of 18 months.

Subsequently, after CBK node, KCB appointed its head of regional business operations Paul Russo as the new NBK managing director to head transition team, replacing Wilfred Musau.

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Musau was then assigned a new role at KCB Group to support the integration.

To the mining sector, following the placement of Athi River Mining under administration over a 19.3 billion shillings debt in 2018, the firm’s administrator, Price Waterhouse Coopers inked a deal with Devki Group’s National Cement Company early this year for full acquisition of assets and business at a cost of Kshs 5 billion.

With the deal was approved in October by the Competition Authority of Kenya.

National Cement Company effectively became the second-largest cement manufacturer in the country after Bamburi Cement.

In the aviation sector, plans by Kenya Airways to take over Jomo Kenyatta International Airport also hit a dead end when the career formally withdrew from the Privately Initiated Investment Proposal in September.

The deal had faced opposition from KAA and National Assembly’s Departmental Committee on Transport, Public Works and Housing.

Transport Cabinet Secretary Dr James Macharia defended the Privately Initiated Investment Proposal terming it an important strategy to rescue the ailing airline.

Members of the Kenya Airline Pilots Association, however, supported the merger saying if it is well handled, it will improve the fortunes of the national carrier.

However, the Kenya Aviation Workers Union told legislators that the deal would be detrimental to its members since it will result into serious job losses KAWU and Air Operators arguing the revival of Kenya Airways can be done alternatively achieved through appropriate financial and operational restructuring.

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