Having entered into negotiations with Helios for the acquisition of Telkom in Kenya, Sunil Mittal’s group persists in wanting to list its African subsidiaries in order to reduce its debt and free up liquidity in order to counter competition in India.
At the start of 2017, industry specialists were all predicting Bharti Airtel to leave the continent. The first Indian mobile operator made few margins there, and its accounts were still burdened by massive debt of 11.7 billion euros, nearly half of which was linked to its African acquisitions, grouped within Airtel Africa. For the boss and founder of the New Delhi-based group, Sunil Bharti Mittal, the situation had become unbearable.
Two years later, Airtel has still not deserted Africa, where it has more than 94 million customers, making it the fourth operator on the continent behind the trio MTN, Vodafone and Orange. It achieved 2.68 billion euros in turnover in 2018, stable revenues compared to 2017 (+ 1%). In recent months, the group has even gone on the offensive.
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Currently, he is negotiating with the London fund Helios Investment the acquisition of 51% of the shares of Telkom Kenya, the third operator in the country. The operation mobilized Sunil Mittal in person, who came on site in mid-January to lead the discussions, with the aim of merging Telkom Kenya and the local subsidiary of Airtel Africa, number two in the market. This operation would allow Airtel to catch up a little of its delay against Safaricom by accumulating 30% of market share, against 65% for its competitor.
This potential takeover is reminiscent of that of the Millicom subsidiary (known under the Tigo brand) in Rwanda at the end of 2017. That same year, the two operators also decided to join forces by creating AirtelTigo in Ghana.
Underestimation of the aggressiveness of the competition
Arrived in Africa in 2010 after having bought the fifteen sub-Saharan subsidiaries of Kuwaiti Zain, for 10.7 billion dollars, Bharti Airtel had the idea of reproducing its low cost model proven in India, profitable thanks to the volume effect. and the extensive use of technical subcontracting.
But on the continent, the operator has never managed to adapt its recipe. “The Indian model was not applicable as it is in Africa, due to regulatory differences existing from one state to another which increase operational costs. Bharti Airtel could not lower them as much as it wanted, which means that its Ebitda (operating margin) deteriorated drastically from 2013, ”notes Cameroonian Guy Zibi, of Xalam Analytics.
“The first to bet on the low-cost model, he broke the prices, but underestimating the aggressiveness of the competition, particularly MTN, Orange and Vodafone, which followed him and then passed in this direction”, completes Jean-Joseph Boillot, associate researcher at the Institute of International and Strategic Relations (Iris) in Paris, and specialist in economic links between India and Africa.
If Bharti Airtel lacked responsiveness to respond to them, it is because in parallel with its African disappointments it has seen the threatening competition from Reliance develop in its homeland through the operator Jio. “Over the past three years, Jio has succeeded in providing mobile internet to the masses in India, thanks to very attractive prices. Its revenues in telecoms in 2019 could exceed those of Bharti Airtel in the subcontinent ”, estimates Jean ‑ Joseph Boillot.
In New Delhi, negative perception of investments on the continent
In order to resist it, Sunil Mittal’s group needs to spend considerable sums, which means that every dollar invested in Africa is perceived negatively in New Delhi as a dollar not invested in India. He therefore severely reduced the sails from 2014 to 2016 on the continent. “At one point, the Indian group may have thought of selling all of its African branch, but the price it expected was too high, which put off potential buyers, in a profitable sector. in sharp decline in recent years, decrypts Guy Zibi. He therefore resolved to apply a plan B, that of a restructuring. “
To carry it out, the group called in a telecoms veteran, the Frenchman Christian de Faria (since gone to Orange). Arrived in 2013, the former sales director of South African MTN then tries to breathe new life into its strategy by ridding the operator of its low cost image and improving its profitability. It is developing a partnership with Facebook, accelerating its efforts in terms of mobile payment, but mainly working on the sale of its telecom towers and a series of subsidiaries.
Initial Public Offering
While Burkina Faso and Sierra Leone were sold to Orange in 2016, others, such as Chad, Congo, Rwanda and Niger, have not found a buyer. “After the resale of subsidiaries in Burkina Faso and Sierra Leone, Sunil Mittal’s group clearly favored Nigeria [34 % de ses revenus en 2018] and East African countries [36 %] – Kenya and Tanzania in the lead -, where they hold number one or number two positions in the market, the only ones able to ensure them a correct profitability “, notes analyst Thecla Mbongue, of the firm Ovum.
“Elsewhere, especially in French-speaking Africa, in countries considered too small in volume – such as Chad – and where they are not in a leadership position, if it is not possible to sell, they seek to generate more cash flow possible, ”adds Guy Zibi.
At the end of its revaluation plan, the Indian group intends to introduce Airtel Africa (a holding company bringing together the African subsidiaries) on the stock market, with a double objective: to recover part of its investment and reduce its debt, but also to provide the means for its operations on the continent to develop independently of the situation of its parent company.
Announced in February 2018 and initially scheduled for March 2019, the introduction – which could value Airtel Africa at some $ 8 billion, an amount hoped for by Indian management – has been postponed indefinitely, but is still pending. agenda. To dress the bride well and seduce the London market, Airtel Africa executives are continuing their portfolio review, determined to focus their investments on key countries with the most interesting volume and margin prospects.
Temasek, Singtell, Warburg Pincus, SoftBank, strong allies
A rigorous cost hunt, closely followed by Sunil Mittal and Raghunath Mandava, CEO of Airtel Africa, which has proven to be effective. “The latest results for 2017 and 2018 are encouraging, EBITDA – € 895 million in 2018 – has recovered significantly, to its highest level since 2011, with revenues rising sharply in its key countries, in particular in Nigeria (+ 27% excluding currency effects over the period from March to September 2018) ”, notes Guy Zibi.
“This is proof that Airtel’s teams have grown in maturity, by adapting their model to the local realities of each of their subsidiaries”, adds Thecla Mbongue, who observes an Africanization of subsidiary management, even if, at the continental level , it is mainly Indians that we find at the helm, as evidenced by the organization chart of Airtel Africa.
The raising, at the end of 2018, of 1.25 billion dollars from the Singaporean sovereign wealth fund Temasek, the operator Singtel, the American fund Warburg Pincus and the Japanese bank SoftBank indicates that the first phase of restructuring of the Indian group was able to convince powerful allies. They will support it in the preparation of its IPO, with a less indebted situation and the continuation of investments in key countries.
“The commitment alongside Airtel of Singapore, which China is trying to circumvent with its New Silk Roads, shows that Indian groups are capable of federating Asian alliances destined for Africa, which could lead to longer term, on a resale to one of these partners if Bharti Airtel decides to completely exit the capital of Airtel Africa, ”explains Jean-Joseph Boillot.
On January 30, the announcement of the investment of 200 million dollars by Qatar Investment Authority confirms the renewed attractiveness of the African branch of Bharti, whose debt is now reduced to 3.5 billion dollars. As a result of these transactions, Bharti only owns 67.24% of Airtel Africa.
For most of the analysts questioned, it will still be necessary to wait at least six months before the IPO of this holding. The time for the London economy to be more favorable and for the latest merger and acquisition operations to be finalized, the one underway in Kenya, but also others that could follow. Several experts are thinking in particular of an acquisition of Tigo Tanzania, which the authorities in Dar es Salaam would be willing to validate, while Airtel Africa has agreed to sell them 9% of Airtel Tanzania’s shares..
The opportunity to forge agreements with the digital giants
Pending its listing, Airtel Africa will also have to continue to grow its revenues from services associated with mobile internet (24% of the total for data and 7% for mobile financial services), where, even if its performance has improved for a year (+ 30.4% for data revenues, + 56.2% for Airtel Money), they remain for the moment below those of its major competitors.
“Here again, Bharti Airtel would have the ability to enter into agreements with Asian digital giants to increase its revenues in this area,” said Jean-Joseph Boillot. The economist evokes the case of the Chinese Alibaba, which has just set up a first online sales center in Rwanda, where the Indian group is also located.
Airtel Africa: a mainly Indian headquarters
- Raghunath Mandava: Managing Director and Chairman
Trained in West Bengal, this engineer who joined Bharti Airtel in 2003 was notably director of marketing for mobile telephony, then director of operations for India. He moved to Nairobi in July 2016 as Director of Operations of Airtel Africa, before being appointed Managing Director in November 2017.
- Jaideep Paul: Chief Financial Officer
This chartered accountant by training went through the PwC firm before being recruited by Bharti Airtel in 2002. He successively joined the group’s offices in New Delhi, then Bombay in management control functions, before moving on to moving to Nigeria, in 2010, as CFO of the local subsidiary, then to Nairobi, in July 2014, following his appointment as CFO of Airtel Africa.
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- Rajeev Sethi: Directeur commercial
Previously Managing Director of Grameenphone, the leading telecommunications operator in Bangladesh, a subsidiary of Norwegian Telenor, this MBA holder from the Indian Institute of Management in Lucknow joined Airtel Africa in 2017 as Commercial Director.
- Razvan Ungureanu: Technical Director
This Romanian telecoms engineer has worked successively around the extension and technical management of networks for Orange subsidiaries in Bucharest (Mobil Rom) as well as in Belgium (Mobistar) and the Dominican Republic (Orange Dominicana), before to join the Caribbean group Digicel in 2014 until his appointment in March 2016 as technical director of Airtel Africa.