MPs want Treasury to recover billions invested in Telkom Kenya

Kenya: The Public Investments Committee (PIC) of Parliament may have given the National Treasury an impossible task in asking it to claw back its shareholding in Telkom Kenya.

The Committee wants Treasury to negotiate afresh with French telco Orange to recover some of the shareholding lost over time in the telecommunications firm.

Orange – previously operating as France Telecom – currently holds a 70 per cent stake in Telkom Kenya while the Government holds the remaining stake, a strikingly different scenario compared to when France Telecom came on board in late 2007 when it bought a 51 per cent stake.

PIC wants Treasury to either increase its shareholding or recover some Sh2.5 billion from Orange. This is the money that the Government had pumped into the operator when the two shareholders were recapitalising and restructuring Telkom Kenya’s balance sheet. Treasury failed to remit some of the money towards this end and lost some of its shareholding after an agreement by the two shareholders to convert some of their debts into equity.

This was a  tough call, given that this was already a concluded deal after the recapitalisation and balance sheet restructuring of Telkom Kenya where Treasury did not meet some its requirements. As a result, Treasury lost some of its stake. It is now emerging that 70 per cent shareholding held by Orange could be up for sale.

“The Government should either renegotiate with the aim of recovering a higher shareholding of at least 35.1 per cent in line with its contribution of Sh2.5 billion and the recapitalisation and restructuring agreement or the Cabinet Secretary, National Treasury should ensure that the Sh2.5 billion that was paid is refunded together with interest at market rate backdated to 1st January, 2013,” said the PIC in the Special Report on Recapitalisation and Balance Sheet Restructuring of Telkom Kenya.

Sell its stake

However, this  appears to be a tall order, say analysts. Broadly speaking, the only options that Treasury may have is to either make further investments to get more shareholding or sell its stake to get cash, none of which are in line with the PIC’s recommendations. The planned sale of Orange’s stake in Telkom Kenya makes the issue even more complex. “Legally, it is possible but there has to be a value consideration... it has to be commercial and not just an issue of clawing back shareholding,” said an official familiar with the issues that have afflicted TKL since its partial privatisation in 2007.

“But then again there have been reports that Orange is planning to sell its stake to a third party, who appears to have already put in a bid and this makes it more complex. Given that there is already a sale agreement, Orange cannot make any significant changes especially in regards to its shareholding at Telkom.”

Orange is said to have already given the Government its intent for the sale of its shareholding in Telkom Kenya. A number of firms have bid to buy the company. Among them are Vietnamese state-owned operator Viettel Group, South Africa’s MTN, Nigeria’s Megatech Engineering and an undisclosed UK firm. Orange has not talked about the planned sale but last year it appointed global business advisory firm Lazard to audit its Kenyan and Ugandan operations. The outcome of the audit would enable the firm gauge its option, including looking for partners to invest in the operator or exit altogether.

The Communications Authority of Kenya (CA) is yet to get a notification of the planned sale. Francis Wangusi, the director general CA, said the regulator had not received any formal notification on the sale of Orange’s stake in Telkom Kenya.