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Kenya: Capital Market to Reap From Telkom's Borrowing
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Business Daily (Nairobi)
30 April 2008
Posted to the web 30 April 2008
Michael Omondi
Players in the capital market and banking industry are bracing for a windfall as national telecom operator, Telkom Kenya, prepares to borrow in excess of Sh7 billion from the local market.
The cash-strapped Telkom Kenya is seeking a multi-billion funding to modernise Telkom's infrastructure, roll out its mobile telephony business in September and fix its weakening cash position, which is expected to fall in the negative territory from September.
Through these plans, the loss-making firm hopes to shake off growing competition in the local telecoms market and enter the profit zone by 2011, says Dominic Saint-Jean, the firm's CEO.
The firm has been making losses over the past decade and was expected to make a loss of Sh1.18 billion in 2007.
For growth, the new majority shareholder is banking on Telkom's newly minted mobile license to pull it out of the loss-making pit. But for this to happen, Mr Saint-Jean has to move with speed and create the multi-billion funding war chest. Though the firm was reported to be seeking Sh7 billion, Mr Saint-Jean told the Business Daily that they are targeting a higher figure without giving details.
"Yes, Sh7 billion has been quoted, but we need to borrow more than the figure," he said.
The quest for funds comes shortly after France Telecom paid Sh26 billion - giving them a 51 per cent stake in the State owned firm - to win control of the board and management.
Now, the firm has unveiled a fundraising plan that will see its raise the multi-billion debt in three tranches.
First, it requires cash from its two shareholders - France Télécom and the Kenyan Government - to cover for its weakened cash flow position over the next three months.
Second, it's seeking a short term loan, with a maximum tenure of one year, from commercial banks to fund the mobile telephony roll out and fix its internet business. Third, the firm is going for long term debt to cover that will help its stabilise its networks.
"In seeking funding will go for a mix sources that best suits us including banks and bonds," said Mr Saint-Jean.
This news is set to excite the banking and the investment banking fraternity. And it comes barely a year after Telkom Kenya raised Sh5.8 billion from a number of banks to fund its restructuring ahead of a sale of the 51 per cent stake to France Telecom.
Commercial banks are increasingly targeting the telecommunication industry to grow their lending businesses as indications show that the industry is set to maintain its growth momentum.
The industry top dogs including Standard Chartered Bank, Barclays Bank and Kenya Commercial Bank have all cast set their sights on the sector, setting the stage for a bruising battle for control of this lucrative market.
The increased focus on lending to players in the telecommunication sector is informed by the increased need for capital among the players as they race to upgrade their services as a way to grow their share in the lucrative telecoms market.
Besides the huge capital requirements, banks have been attracted to the sector's growth potential, which has pushed firms in the sector, such as Safaricom, up the profitability ladder across East and Central Africa.
In 2007, Safaricom returned a profit of Sh12 billion on revenues of Sh47.4 billion.
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As a result, the banking fraternity is ready to bet their money on the telecoms industry given their healthy cash position.
In the past four years, the banking industry has lent Sh23.8 billion to the telecoms sector in three syndicated loan products including the Sh5.8 billion lent to Telkom last May, Sh12 billion to Safaricom in 2006 and Sh6 billion to Celtel in 2004.
On the other hand, players in the capital markets have lent Sh8.5 billion to the sector in form of corporate bonds-Sh4 billion for Safaricom and Sh4.5 billion for Celtel.
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