Local partners win big in forced listing of telcos

A new law passed by Tanzania’s parliament last week that will force local telecoms firms to list on the Dar es Salaam stock exchange could transform the country’s capital markets — and create a new class of well-connected, super-wealthy entrepreneurs.

In the coming three years, Dar es Salaam could find itself becoming a regional centre for raising debt and equity capital for telecoms companies in the region as six players list in transactions that are likely to be worth tens of billions of dollars, rivalling Nairobi and Kampala.

It is now emerging that far from hurting foreigners who hold majority stakes in five of the country’s six operators, the biggest beneficiaries from these laws are local business people who teemed up with strategic investors to bid for mobile phone licences.

While the government has been marketing the law as intended to both wipe out tax avoidance and widen local shareholding of telecoms and media companies, it opens a revolving door that allows the business establishment to sell their illiquid investments to the common man.

Some of these local investors — most of whom are financial, rather than trade investors — have over the past two years reportedly been looking for buyers for these stakes in Tanzania’s leading mobile phone companies.

Strategic investors

As long as strategic investors were not willing to list on the DSE, these stakes remained illiquid investments, which are hard to value either to track the performance of one’s assets or to use as security to borrow money from banks.

The Tanzanian government will also be a big winner in a complicated cross-shareholding deal involving its investments in Zain Tanzania and Tanzania Telecommunication Ltd (TTCL), the state-telco.

Mid last year, in a story reported by Reuters, Peter Msolla, Tanzania’s Minister for Communications, Science and Technology was quoted as saying that Zain had asked to be allowed to give up its 35 per cent stake in TTCL.

“Recently, Celtel has shown interest in exiting. But there’s a need for consultation before that happens,” said Mr Msolla, adding Zain, TTCL and Consolidated Holdings Corp holds shares in state-run corporations on the government’s behalf.

“In principle, they have agreed to end the partnership and Celtel exits. Celtel’s 35 per cent shareholding will revert to the government. We will continue talks on how to offload those shares,” he said. The government holds the other 65 per cent of TTCL.

Tanzania last year ended a three-year contract worth $5 million with SaskTel International, a subsidiary of Canada’s SaskTel, to manage TTCL.

“They left officially on July 12, so now it’s like TTCL is starting afresh and is under interim leadership,” Mr Msolla said.

State monopoly

TTCL, formerly a state-owned fixed-line monopoly, has 166,656 subscribers, according to the Tanzania Communications Regulatory Authority.

The fixed line business went into free fall over most of the past decade, from 173,591 subscribers in 2000 to 123,809 in 2008, only to recover to 181,671 in 2009.

With Zain’s exit, the government will need to recapitalise TTCL. One source of such funds is selling the 40 per cent stake that the Tanzania government holds in the local operations of Zain.

The same pattern could evolve at Zantel, the fourth largest player with 1.2 million subscribers, which is 51 per cent owned by Etisalat, the UAE-based mobile operator.

The minority shares are held by the government of Zanzibar, Kinbary and Meeco.

Millicom, an international operator, which bought out the remaining 16 per cent interest from local shareholders for a reported $1.33 million, could be one player that would like to dispose a chunk of its shares through the market.