Watchdog queries State ownership in Telkom Kenya

By JACKSON OKOTH

Treasury was yesterday at pains to explain to members of the Parliamentary Investment Committee (PIC) how the Government surrendered 19 per cent of its shareholding at Telkom Kenya.

At the centre of this scrutiny is how France Telecom increased its stake in Telkom Kenya to 70 per cent as a consequence of the government not having provided its full portion of funding for 2012.

In a deal signed in December 2012 between the Government of Kenya and France Telkom, it was agreed that Kenya would pump in Sh 2.4 billion in cash into Telkom Kenya before June 30, 2013.

Failure to do this meant that the Government would lose 10 per cent of its shareholding in the telecommunications firm, leaving it with a paltry 30 per cent from an initial 40 per cent shareholding in December 2012.

“We would like to know which public officer(s) were responsible for entering into such a deal, why the Communication Commission of Kenya was not consulted as the law requires in this reckless, irresponsible and unpatriotic transfer of shares owned by the public,” said Adan Keynan, PIC chairman and MP for Eldas constituency.

PIC also put pressure on Henry Rotich, Cabinet Secretary for the National Treasury, and Investment Secretary Esther Koimett, to put faces to Dubai-based Alcazar Capital – a private equity firm that exited from Telkom Kenya’s board after being bought out by France Telecom.

“How did it happen that Alcazar left the board just months after the company begun its restructuring plan? We are yet to know how they left the board,” said Keynan.

PIC also wondered why the Sh10 billion cash call was executed when Kenya was about to go to elections and was under extreme fiscal pressure, conditions that allowed the Government to surrender its shareholding estimated to be worth Sh34 billion.

“After making a string of losses, it was necessary to inject capital to save Telkom Kenya from its insolvency position. We had the option of liquidating the firm or restructuring its balance sheet by converting some of the debt into equity,” said Henry Rotich.

 In the Sh10 billion restructuring plan, France Telkom was to provide Sh5.1 billion while the Government of Kenya was to put in Sh4.9 billion.

The Government provided Sh2.5 billion but failed to provide the remaining Sh2.4 billion, resulting in a dilution of its shareholding to 30 per cent from 40 per cent.

Interestingly, PIC was informed by Treasury that the shareholder agreements on the restructuring process were approved by the Cabinet in November, 2013. The Attorney General’s office also cleared the deal on December 20, 2012. “The challenge facing the telecoms industry is that only one player out of the four is making profits. We need to find the challenges in this ecosystem and deal with them,” said Rotich.

within three years

Treasury was given 14 days to furnish the committee with names of interests Telkom Kenya Chairman Eddy Njoroge represents, copies of the restructuring agreement and identities of the two directors from Alcazar.

In 2007, France Telecom (now Orange SA) acquired 51 per cent of Telkom Kenya’s shares. As part of the privatisation deal, France Telecom and the Kenyan government would place 11 and 19 per cent of their respective shareholdings on the market within three years of the deal’s completion.

In November 2012, the shareholding structure changed due to a decision by the Kenya Government to convert its shareholder into equity in order to ease Telkom Kenya’s debt burden.