Orange shop along Koinange Street in Nairobi. PHOTO | FILE
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Viettel Group, the Vietnamese firm that wanted to acquire a 70 per cent stake in Telkom Kenya, said it is no longer keen on buying the stake.
Viettel is said to have dropped its bid for a controlling stake in the Kenyan firm after the government refused to give in to some of its demands.
The government had set up a team comprising officials from the Attorney-General’s office, the Treasury and ICT ministries to advise on the next steps should France Telecom fail to come up with a new exit plan.
Viettel Group, the Vietnamese firm that wanted to acquire a 70 per cent stake in Telkom Kenya, has dropped its bid, sending France Telecom back to the drawing board for an alternative exit plan.
Treasury secretary Henry Rotich told the Business Daily that the government had set up a team comprising officials from the Attorney-General’s office, the Treasury and ICT ministries to advise on the next steps should France Telecom fail to come up with a new exit plan.
“Viettel have indicated that they are no longer keen on buying the stake. So we expect France Telkom to look for another buyer or declare what they plan to do should they fail to get another buyer,” Mr Rotich said, adding that it is the French firm that is selling its stake in Telkom Kenya.
Telkom Kenya is jointly owned by the Treasury and the French telecommunications giant, which was in 2007 allowed to buy a majority stake in the loss-making company after undertaking to turn around its fortunes.
Telkom Kenya has, however, remained in the red, costing taxpayers billions of shillings in cash calls made by the French telco which has struggled to compete against market leader Safaricom.
Viettel is said to have dropped its bid for a controlling stake in the Kenyan firm after the government refused to give in to some of its demands.
Viettel had tabled a list of demands, including the immediate extension of all telecommunications licences held by Telkom Kenya for another 15 years.
The Vietnamese company had also asked the Kenyan government for additional 10 per cent stake in Telkom Kenya, a demand that would have left it with an 80 per cent stake in the company.
ICT secretary Fred Matiang’i said on Friday that Viettel’s exit had created an opportunity for other investors who were also eyeing the firm, including a local IT firm and Kenyans in the diaspora.
“There should not be panic that Viettel has thrown in the towel. In fact we are aware that there is a local IT firm and some Kenyans in the diaspora who have expressed interest in the company,” he said.
“Kenyans have come of age and as government we are ready to work with any investor who successfully acquires the majority stake at Telkom Kenya.”
The minister declined to name the IT firm and the diaspora investors, saying it was too early and that the parties had yet to open formal negotiations with France Telecom.
Dr Matiang’i dismissed some of the conditions Viettel had put on the table as unrealistic, insisting that any investor looking to buy a stake in the firm must adhere to existing laws.
France Telecom, which owns 70 per cent in Telkom Kenya, has offered several reasons for its planned exit, including claims that industry regulator the Communications Authority of Kenya (CA) has not established a level playing field to help stop price wars.
“Kenya’s telecommunications market is not yet fully tapped and there is still room for growth for all players. France Telecom’s exit does not mean that ours is a non-performing market,” Dr Matiang’i said.
Safaricom remains the dominant player in the market with 21.9 million subscribers, followed by Airtel with five million, Telkom Kenya has 2.6 million and yuMobile 2.5 million.
The telecoms operators’ revenues have thinned out since August 2010 when the cost of airtime dropped by more than 50 per cent, halving subscribers’ monthly airtime budget.
This is the reality that convinced Essar Telecom, the owners of yuMobile, to wind up the Indian company’s Kenya operations.
If France Telecom gets a buyer for its stake in Telkom Kenya next year, it will be the second investor to pull out of Kenya in as many years.
France Telecom said that their decision to leave had also been informed by ICT secretary’s signal that he intended to cancel a management contract that the company had with the government to manage the National Fibre Optic Infrastructure.
Telkom Kenya has also not hidden its displeasure with the way Parliament’s Public Investment Committee (PIC) summoned and grilled its top management over a transaction that saw the government’s stake in the firm diluted from 49 per cent to 30 per cent.
Until 2012, the government had a 49 per cent stake in Telkom Kenya while France Telecom held the remaining 51 per cent. But the State ceded a nine per cent stake in December 2012 following a Sh30 billion debt write-off before losing another 10 per cent stake in June last year after it failed to inject Sh2.4 billion in a Sh10 billion rights issue.
The last dilution caused a public uproar after Members of Parliament claimed that taxpayers lost at least Sh30 billion in the conversion of shareholder loans to equity.
President Uhuru Kenyatta’s government has effectively suspended privatisation of State-owned firms pending establishment of the proposed Government Investments Corporation.
Telkom Kenya has continued to make huge losses despite efforts by the two shareholders to clean up its books. The combination of losses and the drop in revenues has negatively impacted on Telkom’s cashflow, prompting shareholders to pump in more cash and write off its debts.
The firm has partly responded to this state of affairs with the sale of assets to boost cash reserves that have over time been eroded as competition intensified and tariffs dipped.
Telkom Kenya has in the past sold 11 houses valued at Sh80 million in Gilgil, Nakuru County. It also sought to sell 79 acres of land in Nairobi’s Karen area before the courts stopped the plan over a commercial dispute.
Persistent losses have in the past five years forced Telkom Kenya to rely on shareholder funding and bank loans — a reality that has raised its interest expenses to nearly half the revenues.
This means that the company remains in a weak financial position even as the French look for an exit route.
The company’s losses had hit the Sh6.1 billion mark by the end of August, raising the debt to equity ratio to 16.
The management, in a recent board meeting, is said to have proposed that the shareholders — France Telecom and the Kenya Government — be asked to refinance a Sh17.8 billion loan from France Telecom’s subsidiary, Orange East Africa.
In addition, the shareholders are being asked to refinance the cash flow needs for Q4 (quarter four of the year) to the tune of Sh2.08 billion.
To compound matters even further, the two shareholders are yet to agree on how to handle the Sh1.2 billion High Court award to former employees whose contract were terminated in 2006.
