James Anyanzwa And Alari Alare
13 November 2007
Nairobi — The country's overburdened taxpayers will dig deeper into their pockets to finance a Sh60 billion Telkom Kenya debt owed to creditors ahead of its privatisation.
Ms Esther Koimet, the Investment Secretary at the Ministry of Finance, said the proposed debt write-off was part of the restructuring of the State corporation ahead of its sale to a strategic investor.
The huge debt, she said, would be financed mainly through cash and debt swap arrangements.
At the same time, the corporation will lay off 400 workers this week in the third and final phase of the on-going restructuring programme.
The exercise, to be completed by next year, is designed to return the corporation to a sound financial footing before its handover to a strategic investor.
Under the debt financing arrangements, Koimett said part of the amount (Sh35 billion) had been factored into the current Budget, while the remaining balance would be covered through the unbundling of the shares of Safaricom, the country's leading mobile telephone company that is earmarked for an Initial Public Offering in the next two months. "We have already signed an agreement between Safaricom and the partners interested in the Telkom issue.
These shares will be moved in the course of this week," explained Koimet at a press briefing held at the Treasury during the official opening of bids for the sale of a 51 per cent stake in Telkom Kenya to a strategic investor.
Government planning smooth takeover
Koimet, however, said the Government would be forced to borrow from the capital markets through a bond issue to pay off some of Telkom's debts owed to banks.
She said an agreement has already been signed between the Government and the potential investors that will ensure a smooth takeover in the event of unpaid debts by the time they come on board.
The highest bidder for a 51 stake in Telkom Kenya is expected to be known on Friday when the financial bids will be opened.
On Monday, the technical aspects of the bids belonging to four strategic investors were opened after MTNL of India failed to meet the deadline for submitting the documents.
The firms include France Telecom SA, Reliance of India, Telkom South Africa and the Libya Africa Investments Portfolio (LAP), a consortium set up to reorganise the interests of the Libyan Government in the continent.
Mr Javier Salvo, the Senior Investment Officer, Advisory Services, at the International Finance Corporation (IFC) said the sale of the 51 per cent stake in Telkom would enable the strategic investor to have a key decision-making role in company.
"Whoever wins will be strategically placed to take decision and bring in competency to the company," said Salvo.
He added: "It will also give the company some kind of a structure and cultural quality only found in privately-owned companies."
Telkom South Africa, who recently acquired the giant Internet Service Provider, Africa Online, said they had gone through a similar situation and were well placed to turn around Telkom Kenya.
"We have just gone through a similar situation, we have what Telkom Kenya requires, that is experience and expertise to add value to the company," said Mr Wayne Song, Telkom SA executive director for corporate business development.
Mr Sunjay Jain of India's Reliance did not talk to us.
"I am in hurry to catch a flight, and I'll be back by Friday," he said.
Reliance early last year lost the opportunity to become the Second National Operator (SNO) after failing to apply for the licence within the set deadline.
This would have made it a direct competitor to Telkom Kenya.
Industry regulator, the Communications Commission of Kenya (CCK), withdrew the licence award to Reliance, and resolved to immediately initiate the SNO tender process afresh.
The chance to become Telkom Kenya's competitor literally fell on the lap of Reliance after the tender winner, Vtel consortium, failed to apply for the licence by the set deadline.
This prompted CCK to cancel the tender award and to invite Reliance, the second highest bidder, to apply for the licence in line with the provisions of the tender document. The offer was subject to Reliance matching Vtel's bid price of $169 million (Sh11.3 billion).
Reliance accepted to take up the offer and was subsequently granted more time to comply with the various formalities in preparation for making the licence application.
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