Mobile operator Essar Telecom Kenya has received Sh13.05 billion ($150 million) capital injection from its parent company Essar Group to pay its bank loans.
This will enable the telecom operator finance its operating expenses from internal revenues as it seeks to raise funds for further expansion.
yuMobile CEO Madhur Taneja said the company has been incurring huge interest costs from the loans but will now be able to finance its expenses internally and comfortably.
"We have paid off all our debts for the existing business. That is the biggest burden for any telecom. We do not have any debt at all, its all equity," said Taneja in an interview with the Star yesterday.
Last year, there had been reports that the Indian conglomerate, which owns 80 per cent was planning to pull out of yuMobile, but Taneja said the capital injection shows contrary. It has already invested about Sh43.5 billion ($500 million) in Kenya in the telecom business in Kenya in the last four years.
yuMobile is now expecting to receive Sh8.7 billion ($100 million) loan in March for capital expenditure. This will be the first tranche of its $200 million funding needs for the next few years.
The new money will be invested in expanding capacity in voice, data and yuCash business and other radio frequency and transmission technology.
"We are borrowing money but that is for expansion not for operating expenses, that does not become a debt burden for us, interest servicing cost is not there," Taneja said
He said Essar has already identified international banks where they are able to get the loans in dollars with attractive interest of around 7 per cent. It had contracted transaction advisors BNP Paribas to evaluate the possible funding options.
"Telecom business is extremely capital intensive. And you see returns you break even 5-8 years. so you need to bring in a substantial amounts,"
yuMobile is the fastest growing network. According to CCK figures, its customer base grew from 1.3 million to 3 million users in the year up to September 2012. it aims to gain 1 million new subscribers each and turn profitable by 2014.