Boss Talk

Paul Cunningham: Helios CFO on the PE's experience investing in Telkom Kenya


Helios chief financial officer (CFO) Paul Cunningham. ILLUSTRATION | JOSEPH BARASA | NMG

Helios Investment Partners has been in the news this week over its controversial exit from Telkom Kenya and questioning by a parliamentary committee probing the Sh6 billion buyback of the telco by the government.

Helios chief financial officer (CFO) Paul Cunningham spoke to the Business Daily on the deal and why they had to exit the way they did.

What really was Helios’ investment thesis whilst taking a stake in Telkom Kenya?

Our expectation was that we would be able to succeed where France Telcom had not.

Those expectations were driven by conversations we had engaged in with the government of Kenya and with various authorities and we went into this investment with the expectation that the government and the Competition Authority of Kenya were serious about opening up Kenya’s telecommunications infrastructure to wider competition and that there would be changes in the regulations that would allow Telkom to compete more effectively against Safaricom.

It was off the back of those conversations that we had felt that indeed there was an opportunity in investing in Telkom Kenya and awaken the sleeping giant.

We were expecting regulatory changes to start fairly shortly after we made the investment.

You have indicated that the excision of assets to the tune of about Sh10 billion from Telkom Kenya’s balance sheet without the knowledge of Jamhuri Holdings and Telkom Kenya was one of the straws that broke the camel’s back as far as your investment in the company is concerned... Did you ever consider engaging the United Kingdom government to engage the Kenyan government at a bilateral level to salvage the situation?

Yes. It did cross our mind and there were probably two things that worked against going that route.

The First was that the funds were not UK funds. The majority of our funds came from global investors rather than the UK and so the UK nexus was limited.

Second, the overriding thought was that we were still partners with the government of Kenya in this deal so we still felt that we could do something to turn around this investment and we didn’t want to completely alienate our partners even though they were taking steps that were against the interest of Telkom Kenya itself.

We were very cognizant of the fact that we still needed to remain partners with the government of Kenya.

You have also indicated that the aborted joint venture between Telkom Kenya and Airtel Kenya was another watershed moment in the investment by Jamhuri Holdings in Telkom Kenya. I have always been curious whether they really had any skin in the game.

I believe they did have skin in the game and were certainly behind the scenes working actively with Telkom Kenya and with ourselves to try and make this happen.

I cannot really comment on why they didn’t publicise it, possibly because they had some doubts as to whether the government would actually give approval.

Maybe they had more doubts about it than we did and I guess their scepticism did actually prove to be correct.

Tell us about the $200 million you say was lost due to the aborted joint venture between Telkom Kenya and Airtel Kenya. What proportion was attributable to Jamhuri Holdings?

The $200 million is the projected value, it wasn’t a real loss but a loss of future value.

That was our assessment of the value of Telkom Kenya so Jamhuri Holdings’ share of that would have been 60.0 per cent so $120 million.

Looking at the sequence of events that led to Jamhuri Holdings exercising its put option, do you think there was a deliberate effort by the government to push you out of Telkom Kenya?

I honestly cannot speculate on that. At the time we made our investment, the government was very keen to get us involved.

Our history of investing in the country in particular through Equity Bank meant that the government did actually want our involvement.

Perhaps they were just not prepared to put in place the sort of measures that would make a success of it. Whether or not they actively wanted us out, I am not sure.

Did the government make an effort to convince you to stay on?

When we exercised it I think the government realised there was no real benefit for us staying.

Does the Telkom Kenya experience dampen Helios’ appetite for deals in the Kenyan market?

I think it has to. I am not saying we will not invest in Kenya again, that’s clearly not the case. But it is something that would have to play a part in our investment decisions.

We would have to look at whether there is any interaction with the government on any future investments and make an assessment accordingly.

Whenever we make investment decisions, we naturally look back to our history of investing in that specific country.

In your assessment, what’s next for Telkom Kenya?

My expectation is that the government will look to bring in another partner. I don’t believe that the government wants to run a telco with 100.0 per cent ownership.

The big question will be why would someone else invest in Telkom Kenya and maybe now we will see some changes in the competitive landscape in Kenya that will make it an attractive proposition for a new investor.

It is very clear that the present environment favours the largest player and if the country wants a genuinely competitive environment it will have to make some changes potentially to the detriment of the largest player.

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