Tanzania Allows Airtel to Defer Listing On DSE

Airtel Tanzania is the country’s third largest telco. It has been unable to meet a government requirement to list on the bourse. PHOTO | BOUREIMA HAMA | AFP 

In Summary

• Airtel Africa’s prospectus for the London listing shows the waiver was effected earlier in June.
• In 2016, Tanzania passed regulations that required telcos to offer at least 25 per cent of total share capital on the DSE by December 31, 2016.
• As its rivals took steps to comply with listing requirements, Airtel argued that it was unable to meet this obligation due to several factors.

 

By ALLAN OLINGO

Tanzania has eased pressure on the country's third-largest telecommunications firm, Airtel Tanzania,

to list as part of the settlement reached between the two parties early in June.

Airtel Africa's prospectus for the London listing shows the waiver was effected earlier in June, giving the subsidiary of India's Bharti Airtel Ltd a breather as the Tanzania government continues to push telcos and mining firms to go public or face sanctions.

This policy requirement, passed into law in 2016, saw the country's largest telco, Vodacom Tanzania, list on the Dar es Salaam Stock Exchange in 2017.

"In June, pursuant to settlement arrangements agreed on with the Tanzania government, Airtel Tanzania will receive a waiver of the listing requirement," Airtel Africa says in the prospectus, which The EastAfrican has seen.

In 2016, Tanzania passed regulations that required telcos to offer at least 25 per cent of total share capital on the DSE by December 31, 2016.

Mining companies were also required to sell 30 per cent of their shares to local investors.

Delay

As its rivals took steps to comply with listing requirements, Airtel argued that it was unable to meet this obligation due to several factors.

Top among them was insufficient liquidity in the Tanzanian economy due to a potential lack of investors with sufficient capital to subscribe for the shares. Other factors were market conditions in the telecoms sector and the political climate.

"Neither the Tanzania Capital Markets and Securities Authority nor the Tanzania Communications Regulatory Authority (TCRA) has taken any action against a licence holder for failing to comply nor has any action been taken against a telecommunications company for failure to comply with the Communications Act of 2016," Airtel said.

However, the telco acknowledged that should it fail to comply with the requirement to complete a local listing and/or obtain a minimum local shareholding in Tanzania in future, it could be subject to fines, penalties, litigation and other enforcement actions, which could have adverse effects on its business, operational results, financial condition and prospects.

The prospectus details the agreement Airtel Tanzania struck with President John Magufuli's administration in June. The two sides agreed to restructure Airtel Tanzania and settle disputes.

Tax clearance certificate

Part of the agreement was to grant Airtel Tanzania a one-time tax clearance certificate for all historical tax claims for the period up to December 2018, "such that it will not become subject to any new tax assessments, claims or demands by the government, subject to verification and consideration of the records by the Tanzania Revenue Authority."

Airtel Tanzania's corporate tax loss for the financial year ended 2017 will now be carried forward, and the TCRA fines treated as settled without any liability.

The two sides agreed that such settlements will not be seen as "a concession or admission of wrongdoing, obligation or liability," and Airtel Tanzania will not be subject to any tax arising in connection with the transactions contemplated by the agreements.

Airtel Tanzania will pay the government $26 million over 60 months, with payments having started in April.

The firm and the government will co-operate in the sale of towers owned by Airtel Tanzania, and the proceeds will be distributed in a predefined manner towards repayment of the shareholder loans to be retained in Airtel Tanzania, with the balance distributed as a special one-time payment to Tanzania.

In March 2018, the government raised tax claims of $874 million against Bharti Airtel, relating to capital gains on transfers of ownership of Airtel Tanzania in 2005 and in 2010. It also raised various tax claims against Airtel Tanzania totalling $47 million as at March.

Compliance Decision

A Compliance Decision dated April 20, 2018, said the TCRA held Airtel Tanzania in breach of certain provisions of the Electronic and Postal Communications Act, 2010, and imposed fines of $183 million.

The government is seeking to increase its shareholding in the firm to 49 per cent.

Airtel Africa is also facing similar challenges in Uganda, where in September 2018, the Uganda Communications Commission (UCC) said it will introduce a requirement for all telecommunications firms to list on the Uganda Securities Exchange as a condition for obtaining or renewing a license to operate in the country.

"The UCC announced an intent to change the licensing framework in Uganda, which might include listing obligations and impact the licence fees payable and duration of the licence.

"Once the new licensing framework has been established, Airtel Uganda would be requested to submit an application based on the proposed framework.

"Although there is no legal or regulatory requirement for telecommunications operators to list on the Uganda Securities Exchange, the National Broadband Policy 2018, issued by the Ministry of Information, Communications Technology and National Guidance proposes the introduction of a requirement for all telecommunication operators in Uganda to list on the local securities exchange through an initial public offering," the firm said.

In East Africa, only the Ugandan unit has been posting profits.

Fraud in Kenya

The Kenyan unit announced additional losses of $6.7 million, which it blamed on employee fraud via its mobile money service, Airtel Money. The group has further received $860,000 as an insurance claim against the fraud in Kenya.

"While the group has introduced enhanced controls, including increased segregation of duties, daily reconciliations and technical restrictions on the transfer of funds to non-Airtel bank accounts, the risk of fraudulent activity by individuals employed by or working in partnership with the group cannot be eliminated completely," Airtel Africa said.

It added that technical or administrative errors could result in customer losses for which it could be responsible.