Airtel in CBK crosshairs over capital compliance

The Central Bank of Kenya (CBK) has raised concern over Airtel Kenya’s operations due to mounting losses and failure to meet regulatory standards.

According to filings by Airtel Africa in preparation for listing at the London Stock Exchange, the CBK recently took several regulatory actions including levying a fine against Kenya’s second largest mobile service provider over the past year.

Initial concerns over the company’s ability to remain afloat were raised last year with the regulator carrying out an inspection on the company’s books and preparing a compliance report.

“The compliance report noted that Airtel Kenya had a core capital of negative Sh2.7 billion as at March 31, 2018 and was therefore not compliant with the statutory core capital requirement of Sh5 million as expressly set out in the NPS Regulations 2014,” stated Airtel Africa in its listing prospectus.

“As Airtel Kenya was expected to report a loss of Sh1.2 billion, it was projected to be undercapitalised by Sh3.9 billion as at December 31, 2018. Consequently, the CBK raised doubts regarding the operations of Airtel Kenya as a going concern due to lack of a buffer to cushion it against losses.”

This highlights the financial constraints facing the mobile service provider at a time the sector is experiencing intense competition from both existing players and new entrants.

Airtel Kenya recorded a 58 per cent increase in the number of subscribers from 7.2 million in December 2017 to 11.4 million last year.

Data from telecommunications industry regulator, Communication Authority of Kenya further indicates the company doubled its market share in the voice and SMS market over the past year.

Voice traffic more than doubled from 1.9 million minutes recorded in the three months ending September 2017 to 4.7 million in a similar period last year.

However, this new growth in subscribers and traffic somehow failed to have an impact on the company’s bottom line, with the CBK asking Airtel to submit a capital restoration and business turnaround plan.

“Airtel Kenya submitted a plan proposing to separate the mobile money business from the telecommunication service; in addition to the formation of a new company for purposes of offering financial services; and enhancements of shareholder loans by a further $100 million (Sh10 billion) to stand at $500 million (Sh50 billion),” explains the company in the prospectus.

CBK, however, rejected the plan, asking the company to submit a comprehensive and time-bound restoration plan within 21 days from the date of the compliance report and inject capital to comply with minimum core capital requirements.