Treasury spells out tough terms for bailout of Telkom Kenya
Telkom Kenya CEO Mickael Ghossein addresses a news conference at the company offices in Nairobi, March 23, 2012. The Treasury has set tough conditions for its involvement in any plans to bail out telecoms operator Telkom Kenya.
The Treasury has set tough conditions for its involvement in any plans to bail out telecoms operator Telkom Kenya.
It will seek a fresh management agreement with partners in Telkom to remove the firm grip that the French have on the company’s executive team before participating in any investment or bailout plan, a source familiar with the move said.
The source said that the Treasury, which is the custodian of the government’s investment in the telecoms firm, sees Telkom Kenya’s financial problems as partly arising from the structure of its executive, which is heavily tilted in favour of majority shareholder France Telecom.
Top on the list of the demands that the Treasury is expected to put before its partners when the board meets next month to consider Telkom Kenya’s multi-billion- shilling investment plan is equal sharing of two influential positions – the chief executive officer and finance director – between the two shareholders ‘to accommodate national interest’.
The Kenyan government will demand that its French partners fill either the position of managing director or finance director and leave the other to a Kenyan to balance decision making at the firm.
“The Treasury will only participate in financing of the business plan after a restructuring exercise to share out the posts of managing director and finance director,” said a top bureaucrat, who is part of a team looking into the sensitive matter.
This means that should France Telecom choose to maintain its current hold on the CEO’s position, it will have to cede the finance director’s position to a Kenyan.
Our source further disclosed that the demand for the sharing of the two key positions partly arose from concern at Treasury and Teleposta Towers – the headquarters of the Ministry of Information and Communications – over the high interest rates France Telecom is charging on loans to the Kenyan subsidiary.
“The current management does not agree that the interest rates charged by France Telecom are way above average market rates, but the truth is we are concerned and want a restructuring at the firm,” said the official.
Telkom’s executive positions are currently all French – a development that France Telecom has justified as necessary to bring on board the turnaround skills that the company needs to help pull it out of the loss making pit.
Jane Karuku, the deputy managing director in charge of strategy and the senior most local at Telkom Kenya, resigned recently leaving behind a purely French executive team.
Telkom Kenya is 49 per cent owned by the Kenya government while France Telecom holds a 51 per cent stake through Orange East Africa.
Alcazar Capital — a Dubai based private equity firm — owns 15 per cent of Orange’s 51 per cent stake. A management agreement signed by the two partners at the beginning of the joint ownership gave France Telecom the right to hire Telkom Kenya’s top management team, a deal the Kenya government now wants changed to allow locals to occupy senior decision making positions.
Telkom Kenya was last week reported as having asked the Kenyan government for a Sh10 billion bailout in short-term funding to pay its debts, but the operator has since denied the reports saying it is not in financial trouble.
Eddy Njoroge, the Telkom Kenya chairman and also managing director of electricity producer KenGen, said the company had prepared a business plan that would require investment – including from shareholders – but no decision had been made on the amount of money needed.
“The exact amount we require over the period of investment is an internal issue, but we may not be able to fund the entire budget from our profits,” Mr Njoroge said.
The board of directors of Telkom Kenya is scheduled to hold an extra ordinary general meeting on April 11 to discuss the financing options for the four-year strategic plan where the Treasury is expected to table its demand for changes to the composition of the company’s executive team.
Telkom’s fundraising options are, however, few and are unlikely to include bank loans given that the firm is already heavily indebted – a situation that Mr Njoroge admits needs to be addressed.
Telkom owes its shareholders Sh41 billion having obtained a Sh38 billion loan from Orange East Africa and another Sh3 billion from the Kenyan government.
The telecoms operator also owes Standard Chartered and KCB banks a total of Sh2 billion – making payment of accruing interest a key issue since details of strategic plan emerged.
Contrary to the management agreement at Telkom Kenya, the Treasury has a different deal with its partner at rival telecom operator Safaricom, which gives Vodafone the right to fill the position of chief executive and the head of finance leaving the other executive positions open for competitive recruitment in favour of Kenyans.
The Treasury’s demands came just a day after Telkom Kenya’s chief executive officer Mickael Ghossein announced a restructuring that saw the exit of Ms Karuku who held one of the two deputy managing director positions.
Bruno Allassonniere holds the other.
That move left the telecom operator’s executive management team in the hands of five France Telecom executives.
The five are Mr Ghossein, Mr Allassonniere, Yvan Ridard (head of finance), Allain Bridard (head of IT&N) and Laurent Giraud, the head of wholesale.
Information permanent secretary Bitange Ndemo, declined to comment on the matter, but promised that the Treasury and Telkom Kenya board will issue a comprehensive statement on the matter. Dr Ndemo however said his ministry would use policy to help Telkom get out of its current financial position, especially on the Mobile Termination Rates (MTR) issue.
“We can only assist them on the policy front with issues such as MTR but then again they have been asking for the rates to go up which is working to their disadvantage because they end up using the little money they make to pay Safaricom,” said Dr Ndemo.
The PS hit out at the three small operators Telkom Kenya Orange, Airtel and Essar’s Yu for failing to come up with realistic strategies to capture the data market where the growth potential is high even as the voice revenues where Safaricom is the dominant player declines.
“None of these firms apart from Safaricom seems to have a proper strategy to sell data. You cannot attract internet customers into your network if you don’t have content, you must give them (customers) a reason to go to the internet, it is not an issue of having high speeds and pricing alone,” said Dr Ndemo.
MTR are the fees that operators pay competitors for calls terminating or are received in their networks from outside. Operators pay Sh2.21 per minute for the service and charge that was meant to drop further to Sh1.44 last June but was shelved following President Kibaki’s intervention that suspended it for one year.
Telkom Kenya and Safaricom support the freeze on MTR while Essar’s Yu and Airtel not only want it lowered cut the amount of money they pay Safaricom but are also advocating for a model that leaves the dominant operator with a heavy interconnection rates burden.
Dr Ndemo has been opposed to the drastic lowering of termination rates but did not explain how his promise to assist Telkom Kenya on the MTR will be executed.
