Technology

Nigerian, Vietnamese firms in race to buy Telkom Kenya

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Orange Telkom shop at the Teleposta towers in Nairobi. Photo/FILE

Summary

  • Megatech Engineering Limited of Nigeria and vtel from Vietnam have been talking to France Telecom and are currently conducting due diligence on the business, hoping to conclude the deal by the end of July.
  • France Telecom is looking for someone to buy its entire 70 per cent stake in Telkom Kenya.
  • The negotiations come barely two months after France Telecom sold 95 per cent of its stake in a Ugandan telecoms operator.

France Telecom, which owns 70 per cent of Telkom Kenya, is negotiating with two foreign firms for a possible sale of its Kenyan business.

If successful, the deal could offer it an exit route from the local telecoms scene.

People familiar with the matter said Megatech Engineering Limited of Nigeria and vtel from Vietnam have been talking to the French firm and are currently conducting due diligence on the business, hoping to conclude the deal by the end of July.

“I can confirm that France Telecom is in talks with three firms, Mega-tech being one of them, and is currently doing due diligence,” said a source who did not want to be named.

“France Telecom is actually looking for someone to buy its entire 70 per cent stake in Telkom Kenya and this could be concluded by end of July,” said  the source.

The negotiations come barely two months after France Telecom sold 95 per cent of its stake in a Ugandan telecoms operator, to Africell, even as it announced plans for a similar review of its Nairobi operation.

READ: Telkom Kenya in focus after Orange sells Uganda unit

The two firms are among three said to have expressed interest in Telkom Kenya. The Business Daily could not confirm the identity of the third firm, but sources indicated that it was Nigerian telecoms operator, Emerging Markets Telecoms Service Limited (EMTS), which does business as Etisalat in Nigeria.

Mega-tech, first came to the limelight in Kenya in April when it was said to have expressed interest in the purchase of Essar Telekom’s yuMobile.

The owners of Megatech are said to have friends among Kenya’s political elite, giving it a head start in the race to buy out France Telekom.

Megatech owners were said to have flown into Nairobi in a private jet and started lobbying for permission to enter the race for yuMobile, which had also attracted Safaricom and Airtel.

READ: How last-minute bid by Nigerians threw yuMobile sale into a spin

Francis Wangusi, the Communications Authority of Kenya (CAK) director- general, recently told the Business Daily that neither France Telecom nor Telkom Kenya had filed the no objection notice with it as required by law, implying that the negotiations are still at a very early stage.

“We (the authority) have not heard anything at the moment, but if there is such a deal it must be at the negotiation stage,” Mr Wangusi said.

Telkom Kenya chief executive Mickael Ghossein has previously denied knowledge of France Telecom’s plan to exit Kenya, insisting that it was merely looking for a partner to inject cash.

Three weeks ago, France Telecom, which operates under the Orange brand, said in an email after the Ugandan deal that it was considering a similar review of its Kenyan operation that could lead to taking new partners on board to stave off a looming financial crisis.

France Telecom said that after six years of operation, the Ugandan business had not met the group’s criteria in terms of performance and value creation, necessitating the sale.

“Orange is conducting a similar review with regards to its activities in Kenya. One option would be to find new partners to ensure that the necessary financial and operating resources are available to maintain investment and support the continued development of operations,” France Telecom’s press officer Sebastian Audra said in a previous interview.

Orange’s search for new partners in Kenya comes against the backdrop of multi-billion-shilling court cases filed by former Telkom Kenya employees who are seeking to stop the sale until a case they have filed in court is heard and determined.

Initially, French Telecom had indicated that it would sell part of its 70 per cent stake to another partner or exit the business altogether.

The government, which owns 30 per cent of Telkom Kenya, has lately been reluctant to inject additional funds into the loss-making business.

Other than Orange, Kenya’s fourth mobile operator yuMobile has sought approval from the telecoms industry regulator to sell its business to rivals Safaricom and Airtel.

The exit of Essar Group and possible exit of France Telecom from Kenya is expected to open a new chapter in the history of wireless communication, which is currently dominated by Safaricom – the only operator making a profit.

Industry statistics show that Orange has the lowest number of subscribers, with 2.2 million (or 7.1 per cent market share) compared to Safaricom’s 20.8 million (66.5 per cent).

The combination of losses and drop in revenues has negatively impacted on Telkom’s cash flow position, prompting shareholders to pump in more cash and write off its debts.

France Telecom had hoped to return the firm to profitability by 2010 and list it on the Nairobi Securities Exchange by end of this year, a target that has been made impossible by persistent loss-making.

Telkom Kenya’s revenue for 2013 declined to Sh9.7 billion (83 million euros) from Sh10.2 million (86 million euros) in 2012, according to Orange Group’s financial results.