Mumbai/New Delhi: Bharti Airtel Ltd’s plan to monetize its Africa business has hit a speed bump, with the Tanzanian government disapproving a proposed Airtel Africa IPO, while also staking claim to the company’s unit in Tanzania. The Tanzanian government, which owns 40% in the Dar es Salaam-based unit, through a letter, has informed potential investors that it does not recognize the IPO plans of Airtel Africa Ltd and the ownership of Airtel Tanzania will depend on negotiations between the Indian parent and the government.
Tanzanian government disapproves of Airtel Africa IPO
The Tanzanian government also expects it to be treated as a joint venture partner in the process of welcoming new shareholders. Mint has reviewed the letter written in Swahili and translated into English.
“It’s not legitimate for Bharti Airtel to undertake any affiliate consultations of our Airtel Tanzania company by advertising it publicly without obtaining the consent of a partner who is the Government of the United Republic of Tanzania,” Athumani S. Mbuttuka, treasury registrar, Tanzania, said in the letter.
“Thus, the public and investors (Airtel Africa Ltd) who are supposed to buy Bharti Airtel’s shares in 14 African countries, including Tanzania, (should) know that their ownership of Airtel Tanzania company will depend on the Tanzanian government’s commitment to the Treasury as well as the fate of negotiations between Airtel and the government,” Mbuttuka said.
Reacting to the developments, an Airtel spokesperson said: “It is to be noted, the shareholding of Airtel Tanzania is and will continue to be held between Government of Tanzania (40%) and Bharti Airtel Tanzania BV (60%). There has been no change in the shareholding of either Airtel Tanzania or Bharti Airtel Tanzania BV and the control of Airtel Tanzania will continue to be exercised by Airtel as earlier. We are in dialogue with the government of Tanzania for additional clarifications.”
Airtel is Tanzania’s third-largest wireless carrier, with 10.6 million voice subscribers as of end-September 2017, according to Bloomberg.
The differences between the two parties over the Airtel Africa IPO come even as Bharti Airtel has told the Tanzanian government that investors such as Temasek, SoftBank, Singtel and Warburg Pincus, which have invested $1.25 billion in Airtel Africa in October, may raise their investments to as much as $4.5 billion.
An email sent to the Tanzania High Commission in New Delhi remained unanswered till press time. Repeated phone calls made to the Tanzanian treasury registrar’s office did not elicit a response.
The development is likely to affect the Airtel Africa IPO although the parent said earlier this week that its IPO plans remained on track.
Letting the crisis fester in Tanzania could further strain Bharti Airtel’s ability to raise funds in time, as it struggles to cut its $5 billion debt and boost its cash pile, amid a brutal tariff war in India triggered by the entry of Reliance Jio in September 2016.
“It is definitely a risk to the IPO process,” an analyst said on condition of anonymity. “What is interesting is that Bharti Airtel has not yet given a date for Airtel Africa IPO. Maybe they were expecting this delay and hence raised $1.25 billion from the six firms before the IPO.”
Bharti Airtel had on 14 February 2018 announced its plan to list its African arm to raise about $8 billion. Bharti Airtel’s Africa venture, spanning 14 countries in the continent, started in 2010 when it bought Kuwait-based telecom operator Zain’s Africa operations for $10.7 billion.
In December 2017, according to Bloomberg, the Tanzanian government launched a probe into Airtel’s acquisition of Zain in Tanzania and found that the initial privatization of Tanzania Telecommunications Corp. “broke the law, regulations and procedure”.
For its part, Airtel has maintained its acquisition was in full compliance and followed all approvals from the government. Tanzania’s complaint relates to the initial privatization of the firm five years prior to when Airtel took control, it said in a statement at the time.
“The government of the United Republic of Tanzania continues to negotiate with the Bharti Airtel company for the purpose of obtaining the proper operating and ownership of Airtel Tanzania,” Mbuttuka of Tanzania said.
Airtel is the latest foreign investor to have faced regulatory hurdles in Tanzania currently ruled by its fifth president, John Magufuli. In July 2017, the government demanded $190 billion in back taxes from Acacia Mining Ltd, saying the gold miner had been under-declaring mineral exports for over a decade.
Magufuli, also known as “The Bulldozer”, has gained popularity through a crackdown on corruption, tax evasion and a shake-up of the revenue service. In July 2017, he signed off on legislation that requires government ownership of at least 16% in mining companies, increases royalties on metals exports and imposes an additional clearing fee. The law also allows the government to cancel or renegotiate gas and mineral contracts, and forbids companies from seeking international arbitration.
As for telecom companies, the government said they should sell at least a quarter of their units on the local bourse to boost domestic ownership. The local operations of Johannesburg-based Vodacom Group Ltd, a unit of Vodafone Plc, became the largest company on the Dar es Salaam Stock Exchange when it raised 476 billion shillings ($213 million) in August 2017.
“Airtel, according to the information we have”, is an asset of Tanzania Telecommunications Co., Magufuli said on the East African country’s national broadcaster, TBC, in December. “A terrible game was played. I don’t want to say more than that.”