The planned takeover of Telkom Kenya Ltd by the British private equity firm Helios Investment Partners has run into trouble, further delaying France Telecom’s exit from the Kenyan market.

The French conglomerate, which is shutting down its non-profitable business operations in East Africa, has become embroiled in a fresh dispute with the workers’ union over the sacking of about 500 employees — both unionised and non-unionisable — across all departments in Telkom, which operates the Orange mobile phone network.

The three-month retrenchment exercise, which was to be completed by the end of March, is part of the preconditions set by Helios to acquire the France Telecom stake in Telkom.

Kenya’s Employment and Labour Relations Court last week stopped the planned dismissal of the workers after the Communications Workers Union of Kenya (Cowu) filed a suit against the French investors, disputing the compensation package and the procedure of downsizing.

Lady Justice Hellen Wasilwa ruled that the matter be fixed for mention on January 26, upon which a date would be fixed for the inter-parties hearing.

According to Cowu, France Telecom is sacking workers who have not been declared redundant, implying that these workers must be compensated through a “retrenchment package” and not a “redundancy package” as the French investor is seeking to do.

The workers are also demanding severance allowance of two and half months’ salary for each completed year of service and a golden handshake payment of Ksh200,000 ($1,919) each.

The French for their part are offering a severance allowance of one month’s salary for each year of service completed with no golden handshake.

But the two parties — Cowu and France Telecom — have agreed on the compensation for leave allowances and other statutory deductions such as for the National Social Security Fund, according to Cowu.

“We have differed on the issues of severance pay and handshake. We have also not agreed so far on whether this exercise is a retrenchment or redundancy programme,” Cowu secretary general Benson Okwaro told The EastAfrican last week.

“Our stand is that this is not supposed to be a redundancy but a retrenchment programme because no one has been declared redundant. They are only laying off the workers to fulfil the condition imposed on them by the new investors.”

The retrenchment was part of the demands put on the table by the British investors before they would agree to buy the entire 70 per cent stake held by France Telecom in Telkom Kenya.

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The French investors have already agreed to other demands that include paying off nearly 2,000 former employees of Telkom to the tune of Ksh1.8 billion ($17.27 million). These ex-employees were retrenched in May and June 2006 but went to court challenging the modalities of compensation.

The Kenyan government owns 30 per cent of the shares in the loss-making telco, whose total workforce currently stands at 1,600.

France Telecom has been looking for a suitor to sell off its stake in Telkom Kenya since 2014 but faces other hurdles in its planned exit from Kenya.

These include payment of a Ksh1.5 billion ($14.39 million) debt owed to the Communications Authority of Kenya (CA) related to frequency and operating fees and settlement of a Ksh639 million ($6.13 million) debt owed to its competitor Safaricom.

It is also on the spot for misuse of frequency and failure to meet quality of service.

“Yes, France Telecom will pay. We have no issue with the payment. They have promised to pay before the finalisation of their transaction,” said Francis Wangusi, director-general of CA.

The Kenyan government has opted not to participate in more shareholder loans and equity financing for fear of further diluting its stake in the company.

“The retrenchment is being financed by France Telecom. As a government, we can’t participate in any more shareholder loans because we agreed that we don’t want to be diluted and we can’t participate in any equity financing,” said Victor Kyalo, Principal Secretary in the Ministry of Information, Communications and Technology and Innovation.

Telkom Kenya chairman Eddy Njoroge declined to comment on the matter, saying he is bound by the law not to talk about the retrenchment exercise until 30 days from the time the retrenchment notice was issued. He also denied knowledge of the details of the proposed restructuring programme, referring to it as purely “management issues.”

Telkom Kenya has a market share of 11.8 per cent and 4.5 million subscribers, according to latest data from CA. Safaricom and Airtel control a market share of 66.3 per cent and 19.1 per cent respectively of the Kenya market.

In 2014, France Telecom Telco exited the Ugandan market by selling off its majority stake in Orange Uganda to Africell Holdings.

Kenya is in discussions with Helios over a new shareholder agreement.

Details are not yet available but the government has hinted that negotiations touch on fresh business strategy, reconstitution of the board and how the country can reclaim about 12 million shares (a 10 per cent shareholding) it had lost through a contentious rights issues that is said to have overlooked the due diligence process.

National Treasury Cabinet Secretary Henry Rotich said the government has constituted a high level committee comprising officials from the National Treasury, Ministry of Information, Communications and Technology and the Office of the Attorney General to spearhead the discussions.

Kenya is looking to reinstate its shareholding in Telkom Kenya to 40 per cent from 30 per cent (35.61 million shares), since the telco is considered a strategic asset. The Parliamentary Public Investment Committee said the dilution of the government’s shareholding of 40 per cent to 30 per cent was done through an illegal process.

The committee demanded that the government renegotiates the contract with the aim of recovering a higher shareholding of at least 35.1 per cent.

France Telecom paid $390 million for a 51 per cent shareholding in Telkom Kenya in 2007 at the time of privatisation.

But four years later, in 2011, the firm became insolvent to the tune of Ksh26 billion ($249.53 million) triggering a Ksh10 billion ($95.97 million) additional capital injection from the main shareholders.

The restructuring of the firm’s balance sheet saw France Telecom write off its own share of the loan to Telkom Kenya amounting to Ksh33.6 billion ($322.47 million) and in exchange the government ceded nine per cent of its shareholding in December 2012.

On June 30, 2013, the government ceded another 10 per cent after failing to pay off its outstanding share of the additional capital amounting to Ksh2.4 billion ($23.03 million).

France Telecom will now concentrate on Francophone Africa operations. It has entered into an agreement to take over Liberia’s leading mobile operator Cellcom Telecommunications Ltd through its subsidiary — Orange Côte d’Ivoire.

It also signed another agreement with Bharti Airtel International (Netherlands) BV to acquire Airtel’s operations in Burkina Faso and Sierra Leone.

France Telecom still views Africa as a strategic investment destination despite its relocation from East Africa. The company is pursuing a five-year strategic plan (2015-2020) that seeks to among others offer richer connectivity and reinvent customer relationships.

“This will enable Orange to strengthen its positions in Africa, which is a strategic priority for the group,” the company said.

France Telecom also has presence in the Democratic Republic of Congo, Niger, Cameroon, Central African Republic, Botswana, Mali, Côte d’Ivoire, Senegal, Guinea, Equatorial Guinea, Mauritius, Egypt and Tunisia.