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Taskforce to investigate sale of Zain Kenya assets

By | May 20th 2010

By Morris Aron

Prime Minister Raila Odinga has constituted a taskforce to look into Zain Kenya operations transfer to India’s Bharti Airtel.

This follows revelations that the country may lose up to Sh7.87 billion ($100 million) in taxes, on top of job losses if the full terms of the transfer are not disclosed to the local regulatory authorities before the deal is concluded.

A highly placed source at the PM’s office, who asked not to be quoted due to the sensitive nature of the matter, told The Standard the task force made up of senior people in the telecommunications industry, will study details of the transaction.

Government wants to ensure the firm pays capital gains tax, protects workers’ jobs and addresses privacy concerns before the full entry of Bharti Airtel into Kenya after it emerged that all of Bharti Airtel’s operations will be centralised.

This could mean that phone calls from any African country will be routed to a base country, a process which may result in cross border infrastructure sharing arrangements, without express approval of the concerned governments.

"I can confirm that a team is in place to look at all these issues, before the final word is given on the transfer and a regulatory license is awarded to the new entrant," said the source.

With the move, Kenya joins several other African countries already investigating the manner of Zain’s exit from most of the African market.

Their fear is that Zain may be "flipping" its African assets to a group of international investors, without any gains to the countries in which it was operating, and making a huge profit in the process.

Windfall profits?

Ghana, Zambia, Malawi have formed inter-ministerial teams to scrutinise the assets transfer and accompanying roll out obligations, as well as tax codes, in the hope of claiming a piece of what they see as windfall profits by Zain from the sale. Zain bought Celtel International for $3.4 billion in 2005 to expand into 13 African countries including Kenya and Nigeria.

However, a couple of months ago, Zain signed definitive agreements for the sale of 100 per cent of Zain Africa BV, its African businesses — excluding its operations in Morocco and Sudan — to Bharti Airtel Limited for an enterprise value of $10.7 billion.

The transaction implies an equity value of $9 billion and consideration will be fully satisfied in cash, of which $8.3 billion will be paid upon closing and $0.7 billion will be paid one year from closing.

When contacted by The Standard for comment, Zain Kenya’s Corporate Communications Director, Michael Okwiri said: "Unfortunately, we are not in a position to comment as we have not received this information."

The deal will also see Bharti Airtel assume $1.7 billion of consolidated debt obligations. Analysts say Zain will earn over $3 billion dollars from the transfer.

The taskforce will establish Bharti Airtel’s local partners, and scrutinise its agreement with financiers, given that some of its operations will be financed through debt.

The team will seek clarification on Bharti Airtel’s central operations model and whether it will lead to staff layoffs.

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