Kenya has received a 10 per cent stake, for free, in Telkom Kenya as part of a deal through which private equity firm Helios will take over a majority interest in the underperforming telco from France Telecom.
After a series of meetings late last month, sources disclosed that France Telecom agreed to cede the 10 per cent stake in exchange for the government not exercising its pre-emptive rights over the transaction before the Helios deal was announced.
Victor Kyalo, Principal Secretary in the Ministry of Information and Communications Technology, said the proposed transfer of the 10 per cent stake to the National Treasury from France Telecom was purely a business deal.
“We had a right of refusal to block France Telecom from selling the 70 per cent stake to Helios but we placed a bid for the 10 per cent, which was offered to us at no cost,” said Mr Kyalo, who also confirmed that the proposed share sale at Telkom Kenya is yet to receive regulatory approvals from the Competition Authority of Kenya and the Communications Authority of Kenya.
The government and Helios are now working on a business plan that will ensure Telkom Kenya is weaned off capital injections by shareholders and can raise funds for its activities from the financial markets.
Kenya’s stake in Telkom Kenya dropped from 40 per cent to 30 per cent in 2014 after it failed to put in Ksh2.4 billion ($23.23 million) during a rights issue.
The National Treasury and Helios — a UK-based private equity firm — are negotiating a new shareholder agreement and are looking to restructure the balance sheet of the debt-ridden fixed line operator and bolster its solvency in a bid to woo new lenders.
The modalities of restructuring the company are still under discussion but sources said the new shareholders are keen on running an outfit that is financially independent.
“Our ultimate objective is the revival and transformation of Telkom Kenya into a business unit that is competitive in the telecommunications market,” a source privy to the ongoing negotiations told The EastAfrican last week.
Among Telkom Kenya’s creditors are rival firm Safaricom, which is owed Ksh639 million ($6.18 million) and the Communications Authority of Kenya, which is owed Ksh1.5 billion ($14.51 million).
Other provisions of the new shareholder agreement including Helios’ business plan to turn around the ailing telco are yet to be agreed on, further delaying France Telecom’s exit from Kenya.
National Treasury Cabinet Secretary Henry Rotich would not give a timeline on how long negotiations for a new shareholder agreement could take before France Telecom exits the Kenyan market.
“We have people who are negotiating and when they finish, they will inform me. It will be soon,” said Mr Rotich.
The French conglomerate, which is shutting down its loss making business operations in East Africa, is also embroiled in a dispute with the workers’ union over the sacking some 500 employees of Telkom Kenya.
In January, Kenya’s Employment and Labour Relations Court stopped the planned dismissal of the workers after the Communications Workers Union of Kenya filed a suit against the French investor disputing the compensation package and the procedure of downsizing.
The ruling on the matter is set for March 8.
The National Treasury has been under pressure from the Parliamentary Public Investment Committee to recover about 12 million shares, which had been diluted through the controversial Ksh10 billion ($96.79 million) rights issue where the government failed to honour its financial obligations totalling.
Competition Authority of Kenya director-general Kariuki Wang’ombe said the authority is still analysing the potential impact of the transaction on fair competition in the telecoms sector.
“The issue is managing market structures to enhance competition and avoid market dominance,” said Mr Wang’ombe.
Telkom Kenya has a market share of 11.8 per cent and 4.5 million customers, according to latest data from the Communications Authority of Kenya.