Treasury stake in Telkom Kenya to rise by 10 per cent

Corporate News

Orange shop along Koinange Street in Nairobi. PHOTO | FILE 

By JAINDI KISERO, jaindikisero@gmail.com

In Summary

• When the deal is concluded, the government’s total shareholding in the troubled company will rise to 40 per cent.
• Helios has expressed the intention to acquire France Telecom’s entire 70 per cent stake in Telkom Kenya.
• Helios is taking huge risks buying an entity that is deeply in debt and more or less insolvent.
• Whether a private equity firm will succeed where a transnational telecommunications conglomerate has failed remains to be seen.

The Treasury is set to acquire an additional 10 per cent stake in Telkom Kenya under a new deal that has been negotiated as part of the terms of France Telecom’s planned sale of its shares in the company to Helios Investment Partners, a private equity firm.

This means that when the deal is concluded, the government’s total shareholding in the troubled company will rise to 40 per cent.

People familiar with the ongoing negotiations between the Treasury and Helios told the Business Daily that the government is not paying any money for the additional stake but is being paid in kind for not exercising its pre-emptive rights as contained in the shareholder agreement.

That clause gives the Treasury the first priority to buy France Telecom’s 70 per cent stake in the event the French firm decides to sell, as it now plans to do.

The two parties have met several times since last week and the matter is expected to be concluded in the coming week.

READ: France Telecom goes on Africa buying spree after exit from Kenya

The Business Daily did not establish the value of the 10 per cent stake but France Telecom has in the past acquired similar ownership in Telkom Kenya for billions of shillings in the form of shareholder loans or capital calls that gradually reduced the government’s stake to 30 per cent. 

Until 2012, the government had a 49 per cent stake in Telkom Kenya while France Telecom held the remaining 51 per cent. But the State ceded a nine per cent stake in December 2012 following a Sh30 billion debt write-off before losing another 10 per cent in June last year after it failed to inject Sh2.4 billion in a Sh10 billion rights issue.

In October last year, Viettel Group, the Vietnamese company that had offered to buy Telkom Kenya from the French group, demanded dilution of government shares from the current 30 per cent to 20 per cent — a move that is said to have stalled the deal.

READ: Vietnamese firm drops bid for Telkom Kenya stake

Telkom Kenya was sold to France Telecom in December 2007 under a shareholding structure that gave the French firm the majority stake but that has over time only deepened with its acquisition of more shares. 

The Treasury’s stake dropped to 30 per cent after the government failed to participate in a capital call by shareholders in 2012, which saw the government lose the power to retain its blocking vote on shareholder matters.

Deeply in debt

Helios has expressed the intention to acquire France Telecom’s entire 70 per cent stake in Telkom Kenya together with shareholder loans estimated at $225 million.

Whether a private equity firm will succeed where a transnational telecommunications conglomerate has failed remains to be seen. Indeed, Helios is taking huge risks buying an entity that is deeply in debt and more or less insolvent.