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Telkom Kenya seeks Sh8b bailout

BUSINESS
By Jackson Okoth | June 26th 2013

By Jackson Okoth

Kenya: Struggling mobile phone operator Telkom Kenya is seeking a Sh8 billion bailout from its principal shareholders by July.

The money will enable the firm increase its capital investment and counter stiff competition in the telecommunications market.

“We need this cash to continue to cover operational costs and build on the firm’s infrastructure, including the fibre optic network, as well as improving services delivered by fixed line,” said the firm’s CEO Mikhael Ghossein.

He made these remarks yesterday on the sidelines of the Parliamentary Public Investment Committee (PIC) hearings held to discuss Telkom Kenya’s status and performance.

Cash injection

This is the second time Telkom Kenya is seeking a shareholder cash injection in as many years.

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

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

This two-part restructuring plan saw Kenya lose 19 per cent of its shareholding in Telkom Kenya.

In December, its stake was shaved nine percentage points to 40 per cent as both Telkom Kenya owners swapped Sh19 billion in shareholder debt to equity.

Early this year, it emerged that the Treasury had seen its stake eroded a further 10 points to 30 per cent after it failed to honour its part of a capital injection deal.

France Telecom-Orange, which at the time owned 51 per cent of the firm, was to raise Sh5.1 billion, while the Treasury was to provide Sh4.9 billion. By the end of last year, the Government had only raised Sh2.5 billion. The failure to produce the balance saw it forfeit 10 per cent of its shares.

However, the terms of the deal indicated that Treasury has until June 30 to raise Sh2.4 billion or see its shareholding permanently remain at 30 per cent while France Telecom’s rises to 70 per cent.

Available figures indicate that while Telkom Kenya made a Sh18 billion loss during the 2011 financial year, it had since cut this loss to Sh6 billion by the end of last year.

With the new demands, it is feared that failure by Treasury to provide this cash could result in the Government further diluting its shareholding in the firm.

“Treasury has all the details concerning its shareholder dealings with France Telcom, while I deal only with operational issues,” Ghossein told the House committee.

This was after MPs insisted he disclose what will happen to the Government’s stake in Telkom Kenya if it fails to pump in the Sh2.4 billion.

Underperformance

Telkom Kenya blames its woes on monopolistic tendencies in Kenya’s telecommunications business for its underperformance, as well as vandalism on its fixed line cables.

“Kenya has no copper mines yet it is a leading exporter of this commodity,” said Ghossein.

He added that while Telkom Kenya generates adequate revenue, the money goes to salaries, interconnection fees, energy, spectrum charges and Sh144 million in legal fees for the numerous litigations before the courts.

In 2012, Telkom Kenya paid out Sh1.2 billion as spectrum fees to Communications Commission of Kenya (CCK), Sh1.6 billion to Kenya Power and Sh300 million to more than 2,500 guards at its facilities.

“We are hopeful that Telkom Kenya will go on the positive and begin making profits by 2014. We are still rebuilding and upgrading the old network we inherited, which dates back to the 1970s,” said Ghossein.

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