Telkom’s loss throws bourse listing plans into doubt

The sale of Telkom Kenya shares through the Nairobi Stock Exchange will spill outside the anticipated three years since its acquisition by France Telecom after it emerged that the unit recorded losses in the last financial year.

Under Kenya’s listing requirements a company needs to have made profits for at least three years and Telkom Kenya’s failure to return a profit in the first full year of operation under the French firm means it cannot meet this criteria until 2014.

Under the terms of the sale of the company’s majority control to a consortium involving France Telecom and Alcazar Capital, the integrated telecommunications services provider was to be listed within three years at the earliest.

France Telecom’s 2009 financials show that the French company lost Sh10 billion in its Kenyan operation in the year under review.

“Telkom Kenya generated revenues of Sh11 billion over the full year 2008. Telkom Kenya’s net income was Sh(10) billion,” said the company in its results released last week on Thursday.

The amount includes losses of Sh300 million of amortization of identified acquired assets (net of deferred taxes reversals) and Sh5 billion losses due to goodwill impairment.

France Telecom also noted in its results that the sale price of Telkom Kenya reflected residual goodwill amounting to Sh16 billion, meaning the company was effectively worth Sh11 billion when it was sold in 2007.

France Telecom says the goodwill was mainly attributable to the company’s launch of mobile operations in Kenya and to synergies between the fixed-line and mobile businesses where Telkom hopes to carve a niche for itself in the data market.

Following its consolidation into the group, France Telecom also removed Telkom Kenya from its “assets available for sale” category in its financial statements.

Kairo Thuo, a director at financial consulting firm Viva Africa Ltd, says accounting standards require a company to classify an operation as an “asset available for sale” if it has no controlling stake in that firm.

The group’s financial statements reveal that the France Telecom led consortium’s total share-holding of 51 per cent is split between France Telecom and Dubai based Alcazar Capital, with the former owning a 78 per cent share while Alcazar has 21 per cent.

This means France Telecom effectively holds a 40 per cent direct interest in Telkom Kenya while Alcazar Capital Limited, a consortium partner in the 2007 purchase of the Kenyan fixed line operator, holds a 10.9 per cent stake.

In 2007, the consortium acquired a 51 per cent stake in Telkom Kenya, the incumbent Kenyan telecom operator, for Sh26 billion.

The government currently owns the remaining 49 per cent in the firm.

The release of depressed earnings means Telkom Kenya will not meet NSE listing criteria that dictate that any company willing to list must be profitable for three consecutive years before it can trade on the exchange.