Telkom disputes Safaricom debt size in Airtel merger tiff

Telkom Kenya has disputed a Sh906.6 million debt that Safaricom #ticker:SCOM is demanding from the firm before its merger with Airtel in a twist that could delay the transaction between the two telecommunication companies seeking to fight Safaricom’s dominance.

Telkom Kenya last week said that Safaricom had inflated the debt, arguing that its merger with Airtel will not affect its ability to clear the unpaid bill.

Safaricom has asked the Communications Authority of Kenya (CA) not to approve the merger before Telkom Kenya and Airtel clear the Sh906.6 million and Sh390.7 million that they owe respectively for interconnection, co-location and fibre services.

“The amounts being reconciled by our teams are less than the figures quoted by Safaricom in the media; Safaricom figures are incorrect and we will be engaging with them,” Telkom Kenya said in a statement to Business Daily.

However, the firm did not disclose how much it owes Safaricom.

The row over the size of the debt could delay approvals for the merger to create a stronger challenger to Safaricom, which controls 65 percent of the mobile telephony market share.

“The intended transaction between Telkom and Airtel will not in any way affect or impact the payment of Safaricom debt,” said the Telkom Kenya statement.

Safaricom insists on receiving the Sh1.2 billion ahead of the merger prompted by a July 12 Kenya Gazette notice on Telkom Kenya position after the firm’s union with Airtel.

Safaricom declined to comment for this story, only saying it had communicated with the regulator.

The merger will see the transfer of Telkom Kenya’s mobile, enterprise and carrier services businesses to Airtel in exchange for a stake in the firm to be known as Airtel-Telkom.

“Telkom will continue operating in the ICT sector providing certain other services to select customers,” said the Kenya Gazette notice.

This has led many creditors to believe that Telkom Kenya will be a much smaller entity incapable of settling its debts.

“It means the companies to be left behind will be shells of themselves well incapable of taking care of their expenditures because the core businesses taken away were their pillars,” said former Airtel workers opposed to merger pending conclusion of a suit where the workers are seeking Sh1 billion after their layoff.

The merger deal will not involve Telkom Kenya’s extensive real estate holdings and some government contracts for unspecified services, Telkom said in February when announcing the deal.

Telkom Kenya has since put on sale Sh3.87 billion properties spread across the country as it seeks to raise cash to contribute in the upcoming merger.

The firm has hired a property dealing firm, Axis Real Estate, to dispose of the prime assets sitting on about 17.8 acres of land.

Safaricom wants the money it is claiming to be paid before the deal is sealed.

“We request the Authority’s intervention in ensuring that all the outstanding debts owed to us in relation to the said services are paid in full as a prerequisite for the approval of this transaction,” Safaricom acting CEO Michael Joseph Safaricom told CA in a letter.

Telkom Kenya reckons that Safaricom is seeking to use the debt to delay the merger.

Telkom accounted for 7.9 percent of Kenyan mobile telecom subscribers in March, behind second-placed Airtel, which had a 26.1 percent market share.

“The intended transaction will enable the two players (Telkom and Airtel) through the combined entity, Airtel-Telkom, to have the scale necessary to take on the market and have a stab at having a competitive environment,” Telkom said in its statement to Business Daily.