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Government loses ownership grip in Telkom Kenya

By - | Published Sat, January 12th 2013 at 00:00, Updated January 11th 2013 at 19:24 GMT +3

By Jevans Nyabiage

NAIROBI; KENYA: Kenya’s stake in Telkom Kenya is expected to drop to 30 per cent in a debt swap that will see the Frenchmen hold firm grip on the country’s oldest telecommunication firm.

As part of the plan to save the operator from debts that was estimated at about Sh51 billion, France Telecom-Orange and Government of Kenya in 2012 agreed to convert part of the Sh34 billion shareholder loan they advanced the operator into equity.

They also agreed to provide additional Sh10 billion operational funds in proportion of their shareholding last year in an elaborate plan to recapitalise the firm’s balance sheet.

“On this basis, and, as a consideration for Orange agreeing to write off a significant part of its shareholding loan, Orange would increase its stake in the company from 51 per cent to 60 per cent,” indicated a paid up advert in the local dailies on Friday.

As at the date of signing the agreement on December 21, last year, France Telecom says it had provided its full share of Sh5.1 billion, while Kenya had given the operator Sh2.5 billion of its portion of Sh4.9 billion.

It didn’t provide the balance of Sh2.4 billion by December 31.

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“As a consequence of Kenya not having provided its full portion of 2012 funding, the stake of France-Telecom will increase to 70 per cent,” said the statement by Orange.

Effectively, this means the Government’s share in the fixed-line monopoly will drop to 30 per cent. But Kenya has an option to increase its stake to 40 per cent by June 30 by injecting the balance of Sh2.4 billion.

“The new capital structure with shareholder equity expected to exceed Sh18 billion at the end of 2012 will enable Telkom to pursue its growth over the coming years by implementing its business plan approved by the board,” read in part the announcement.

The statement also indicated that the conversion of the debt into equity would free the company to borrow from the market.

When a consortium led by France Telecom paid Sh27 billion for 51 per cent stake in Telkom Kenya, it signaled a new era for the then State-run fixed-line monopoly.

The aim of the privatisation was to create efficiency at the operator that had been weighed down by a bloated workforce of more than 18,000, debts and political interference that put its books in the red.

Following its privatisation in December 2007, France Telecom was expected to steer Telkom to profitability in three to five years in preparation for the eventual prize: listing at Nairobi Securities Exchange.

Under the terms of the sale of the company’s majority control to a consortium involving France Telecom (40 per cent) and Alcazar Capital (11 per cent), the telecoms services provider was to be listed within three years at the earliest – which was December 2010.

 Five years after its takeover, Telkom continues to bleed heavily. It has had to rely on its main shareholders to inject more cash to remain afloat.


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