Lesley Stones
15 October 2008
Johannesburg — ANALYSTS at Moody's Investors Service have put a damper on Telkom's party by warning that they could downgrade its rating if they do not like what Telkom decides to do with a multibillion-rand windfall created by selling its shares in Vodacom.
Telkom is expected to receive about R21,75bn when it sells 15% of Vodacom to the British operator Vodafone. Shareholders hope much of that will come their way as a special dividend, though a substantial amount is expected to be retained to beef up its networks and possibly make acquisitions to help it fill the cellular void that divesting from Vodacom will leave.
Yesterday Moody's said its rating of Telkom was dependent on how the operator used the cash.
Telkom has not disclosed its plans, nor has it indicated its likely future strategy with respect to filling the mobile gap.
Telkom's stake in Vodacom was a key operational and financial asset and Moody's said it would reassess the credit quality once it could determine the capital structure of the new Telkom and its business strategy with respect to fixed and mobile expansion.
Other factors to consider were an increasingly competitive environment with the fixed-line business already under pricing pressure, and weakening credit metrics over the next 12-24 months as Telkom requires funding for future investments.
Telkom's shares have traded vigorously since it firmed up its plan to shed Vodacom, with its board and the government endorsing the deal.
The move will also see Telkom unbundle its remaining 35% stake to its shareholders by listing Vodacom on the J SE. That will give its owners a stake in the newlylisted mobile operator as well as let them retain their stakes in the fixed line business.
Telkom stock closed at R110,10 on Monday and rose to R115 yesterday on the expectation that it will pay a special dividend. But the stock lost a little ground after the Moody's ratings warning, slipping back to R112,80.
Analysts are busy speculating on how Telkom will use the cash, with most expecting it to pay a dividend while retaining enough to fund its future strategies -- whatever these may be.
One option is to pump billions into building a wireless network to fast-track fledgling efforts to offer mobile services of its own.
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