State faces Telkom bailout headache


A subscriber holds a 4G Telkom SIM card. FILE PHOTO | NMG

The government faces the prospect of a multi-billion shilling outlay if it is to turn around Telkom Kenya following its takeover of the entire ownership of the telco, disclosures made by previous majority shareholder Helios Investment Partners have revealed.

Helios, which offloaded the telco to the government last August, told The National Treasury in a letter dated July 15, 2021, that it would take an investment of Sh20 billion to turn around the business, coupled with regulatory changes to support the company.

Read: State fully acquires Telkom Kenya in Sh6.09 billion deal

The estimates by Helios have pointed to the level of investment needed to return the telco to profitability, a responsibility that now lies squarely with the government as the full owner of the third-largest telecommunications company.

The letter from Paul Cunningham noted though that the best option for the telco was a joint venture with rival Airtel Kenya, which would have created more meaningful competition in the sector and reduced the need for further capital injection by both shareholders.

Mr Cunningham is a director at Jamhuri Holding Ltd (JHL) which is the special purpose vehicle that was set up by Helios for its investment in Telkom Kenya Ltd in June 2016.

This merger proposal was however unsuccessful, over what JHL termed as a lack of support from the government, leading eventually to the decision by the firm to exercise the option of offloading its 60 percent stake in Telkom to the Treasury.

JHL had enlisted the services of consultants McKinsey & Company in 2018 to advise on the most viable strategic options for the company.

The consultancy outlined three options, the first being a transformation of Telkom Kenya via a capital injection of Sh20 billion and “perfect execution of the McKinsey business plan which included requisite regulatory intervention.”

According to the disclosures, Telkom had made a gross loss of Sh5.5 billion in 2018, but which could have fallen to Sh1.7 billion by 2021 if the shareholders injected Sh20 billion in new capital into the business.

The second option, as per JHL, was shutting down the business, which would have however required an injection of Sh14 billion by the shareholders—Helios and the government— to settle outstanding liabilities after liquidating all assets. This effectively indicates that the telco is insolvent.

The third and most preferred option was the merger with Airtel, which the telco argued was necessary if the two were to compete effectively with market leader Safaricom.

Helios eventually offloaded the firm to the government by exercising a pre-emptive sale option at a price of $1 (Sh131).

Read: MPs censure Treasury on Sh6bn Telkom deal

The PE however received a refund of a shareholder loan of $51.19 million (Sh6.6 billion) from the government.

The Treasury also took on other outstanding shareholder loans that were first provided by French telecommunications firm Orange, which sold the Telkom stake to Helios.

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