South African firm (Telkon <sic>) joins race for Telkom Kenya

The Kenyan Government is talking up the sale of Telkom Kenya but has so far failed to deliver the difficult bit. Investors will not want to take on the political liability of a making redundant large numbers of the work force. They will expect Government to clear this piece of unfinished business before stepping in with new investment.

Telkom's performance data seen by the Business Daily shows the company incurred losses amounting to $100 million (Sh7 billion) between 2003 and last year. The losses, however, are unlikely to deter interest in the 51 per cent stake on offer because it is part of the data contained in the prospectus being presented to potential partners.

The data shows that the operator, which has rattled the market with the competitive Telkom Wireless tariffs, made a loss of $27 million in 2003. The deficit rose to $32 million and $36 million in subsequent years before improving to $6 million last year.

Interest in the strategic stake is, however, said to be growing with the roadshows being done by Treasury, Telkom and Information ministry officials. Telkom SA is the latest to be confirmed as an interested party.

"They are very keen on Telkom Kenya. The South Africans believe the telecommunications market is very robust and still has more potential," information and communications permanent secretary Dr Bitange Ndemo said.

The South African firm, with an annual turnover of $7.2 billion (Sh490 billion), has been on an acquisition spree having already taken over Africa Online in a bitterly fought war for the Internet service provider with Wananchi Online of Kenya.

Libyan financiers (with BT as management contractors) are in the race for the strategic stake which has also attracted Indian mobile service providers Bharti Airtel, Reliance Communications, Tata Holdings and Vtel communication of Kuwait. The strategic partner in Telkom Kenya was set to be announced in November but at the current pace it is unlikely the timetable will be met.

Already a retrenchment programme that was to be done this month has been shelved to wait on the strategic investor to come on board and assess its establishment needs and technological preference. With the company having borrowed Sh5.8 billion from a a consortium of banks to help it reduce the number of employees, there is the risk of the loss growing bigger because of higher financing costs and continued payment of salaries.

To mitigate the full impact of the policy shift, the company is now understood to be encouraging voluntary retirement. "Already we have had a good number of people volunteering to go. And since we have the money, there has not been a problem," said Dr Ndemo.
(Source: Business Daily)