Helios buys out loss-making France Telecom

What you need to know:

  • The acquisition of Telkom Kenya byĀ Helios Investment Partners could give the Kenya government a second chance to safeguard the public and employeesā€™ interests in the company through a new shareholder agreement.
  • National Treasury Cabinet Secretary Henry Rotich told The EastAfrican that he government will negotiateĀ a fresh share sale-purchase agreement with Helios, which bought a 70 per cent stake in Telkom Kenya from France Telecom, once its directors join the board by January 2016.
  • The government is being driven by the need to protect employees, who are anxious over job losses should the new owners start restructuring as expected, and taxpayers, who stand to lose dividends on future profits of the company.
  • France Telecom is exiting the East African markets as part of the plans to relinquish ownership of unprofitable business units in Africa.

The acquisition of Telkom Kenya byĀ Helios Investment Partners could give the Kenya government a second chance to safeguard the public and employeesā€™ interests in the company through a new shareholder agreement.

TheĀ governmentĀ hopesĀ to buy backĀ about 12 million shares, equivalent to 10 per cent in Telkom Kenya Ltd (TKL) to raise its total holding to 40 per cent. This will return the governmentā€™s shareholding to where it was before it lost 10 per centĀ controversially in a rights issue in 2013.

National Treasury Cabinet Secretary Henry Rotich told The EastAfrican that he government will negotiateĀ a fresh share sale-purchase agreement with Helios, which bought a 70 per cent stake in Telkom Kenya from France Telecom, once its directors join the board by January 2016.

ā€œAt the moment, we want to negotiate a new shareholder agreement with the new partners. Once it is signed, we can now sit down and discuss what we want with them,ā€ said Mr Rotich.

ā€œWe shall negotiate a share sale-purchase agreement with them but details are still confidential until we conclude the discussions on the new shareholder agreement,ā€ he added.Ā 

The government is being driven by the need to protect employees, who are anxious over job losses should the new owners start restructuring as expected, and taxpayers, who stand to lose dividends on future profits of the company.

The shares in question were transferred without appropriate due diligence leadingĀ to loss of jobs and loss of public funds, according to Parliamentā€™s Public Investment Committee (PIC). Had due diligence been properly done, the committee found, the government share in the company would have dropped to 35.1 per cent after the rights issue.

According to Kenneth Akide, a corporate lawyer, the increase in the governmentā€™s shareholding in Telkom Kenya from 30 per cent toĀ 40 per cent will give the state a voice in board decisions, among them making appointments.

ā€œI think they [Kenya government officials]Ā just want to influence decisions on the board. I think the government may see a 40 per cent stake as strategic shareholding to have some control on Telkom Kenya, which it considers a strategic company,ā€Ā said Mr Akide.

People privy to the transactionĀ saidĀ Helios plansĀ a review of the telcoā€™s business model, whose implications on employeesĀ are not clear.

Neither Orange SA (under which the Kenya operation of France Telecom fell) norĀ Helios wasĀ willing to disclose the value of the transaction.

ā€œThe transaction consideration cannot be disclosed,ā€ said Tom Wright of Orange SA through an e-mailed statement.

When France Telecom bought a 51 per cent interest in Telkom Kenya from Alcazar in 2007, it paid $390 million.

France Telecom is departing from the Kenyan telecommunications market after eight years of strained relations with its core shareholder (the government) over the management of the debt-ridden Telkom Kenya, which has never returned a single cent in profit despite massive investment.

Helios is entering new territory in a telecommunications business that is currently dominated by Safaricom with more than 60 per cent of the market share.

Other players still hanging on to a slice of the market are Bharti Airtel (19.4 per cent), Orange (11.2 per cent) and Equitel (2.4 per cent).

Four years later (in 2011) after France Telecom bought into Telkom Kenya, the firm fell insolvent (liabilities exceeded the assets) to the tune of Ksh26 billion ($249.65 million) triggering a Ksh10 billion ($96.02 million) additional capital from main shareholders.

Restructuring ofĀ the firmā€™s balance sheet sawĀ France Telecom write off its own share of the loan to Telkom Kenya amounting to Ksh33.6 billion ($322.72 million) and in exchangeĀ the government ceded nine per cent of its shareholding in December 2012.

OnĀ June 30, 2013 the government ceded another 10 per cent afterĀ  failing to pay off its outstanding share of the additional capital amounting to Ksh2.4 billion ($23.04 million).

Sources said attempts in the past by the government to buy back the shares directly from France Telecom hit a brick wall because of the financial crisis that has gripped the country as a result of massive corruption in government circles, over-spending and over-borrowing.

Under the shareholder agreement, Kenya had the pre-emptive rights to buy back the shares from France Telecom.

Failure to acquire the shares from France Telecom, according to sources, meant that the governmentĀ was keen on working with a co-shareholder who not only had the financial muscles andĀ the technical expertise to turnaround the ailing telco but whoĀ could also let go part of its shareholding when called upon.

France Telecom is exiting the East African markets as part of the plans to relinquish ownership of unprofitable business units in Africa.