Kenya’s top security organ approved the State acquisition of Telkom Kenya for $1 (Sh125.6) from a UK-based private equity fund in a deal that has kicked up a storm in Parliament.
Confidential Treasury documents seen by the Business Daily indicate that the National Security Council (NSC) approved the purchase of the 60 percent stake from Helios Partners on grounds of risk to national security.
In the deal, Kenya reimbursed Helios $51 million (now Sh6.37 billion) through a three-year government bond for shareholder loans the private equity fund provided Telkom Kenya to keep the loss-making entity afloat.
The UK-based fund also forwent Sh29.8 billion ($239 million) it inherited from Orange in 2016 when it bought a 70 percent stake from the French telecom operator.
The transaction has seen Helios lose billions of shillings in Telkom Kenya, a blot for the PE fund that has made outsized returns from share dealings in Africa, including its acquisition and sale of shares in Equity Group.
A key parliamentary committee has asked lawmakers to reject approval of the Sh6.37 billion Treasury bond deal, arguing it lacked MPs’ approval and that the Controller of Budget had rejected the transaction.
The Treasury has up to July 29 to close the deal or have the transaction, which could have allowed Helios to cede the 60 percent stake to a third party, collapse.
“In view of the agency to conclude the deal the above transaction, the National Treasury request that an amount equivalent to $51.18 million be paid to Jamhuri Holdings under Article 223 of the Constitution in form of a three-year treasury and the same regulated in the supplementary budget,” said former Treasury Principal Secretary Julius Muia in the letter seen by the Business Daily.
Jamhuri Holdings is a Mauritius-based firm for Helios’ shareholding in Telkom Kenya.
Article 223 of the Constitution allows the Treasury to spend on emergencies without the approval of Parliament.
The law demands that the Treasury table a mini-budget two months after withdrawing funds from the Consolidated Fund without the approval of MPs.
“The National Security Council in its meeting held on April 1, 2022, approved the proposal by Helios to exit Telkom Kenya under the above terms,” said Dr Muia, adding that Kenya will acquire the 60 percent stake for a nominal value of $1.
The nine-person Security Council is chaired by the President and its other members are heads of the National Police Service, the Kenya Defence Forces and the National Intelligence Service.
Treasury sources reckon that the security risks cited are similar to the ones that led to the blockade of the planned merger of Telkom Kenya and Airtel Networks.
Telkom Kenya provides critical government communications services to the Office of the President, the State House, the government data centre, the Ministry of Interior, the General Service Unit, the Department of Defence’s restricted communications networks and other critical State functions.
The security organ argued that the proposed merger would render government communication vulnerable to interception since the new joint venture company between Telkom and Airtel would not be under government control.
The State had a 40 percent stake in Telkom Kenya.
Telkom Kenya’s data centres, data rooms and base stations manage critical security infrastructure, including carrier services, landing stations, undersea cables and meet-me rooms—where telecoms firms connect to each other.
The Helios deal marked a rare return of a privatised company to State ownership, derailing initial plans for the listing of Telkom Kenya at the Nairobi Securities Exchange (NSE) through an initial public offering (IPO).
France’s Orange bought a majority share in Telkom Kenya when it was privatised in 2007 but then sold its stake to London-based Helios Investment in 2015 for undisclosed fees.
A former Treasury official in the administration of former President Uhuru Kenyatta reckons that the State exercised its pre-emptive rights after Helios notified the government of its intention to exit Telkom.
Pre-emptive rights are privileges extended to shareholders, giving them the preference to buy the stake in the business should one of the owners opt to exit.
“We bought the shares because the government was afraid Helios was going to sell to an investor that did share the same vision with us in the turnaround of Telkom Kenya,” the official said earlier.
Telkom Kenya, which is Kenya’s third-biggest telecommunications company by users, has been losing subscribers in recent years.
The operator’s mobile phone subscribers dropped from 4.23 million users in 2019 to 3.42 million in June, representing a 19.1 percent fall, in a period when its rivals, Airtel and Safaricom, gained customers.
The Sh6.09 billion that the State wired to Helios is part of the Sh22 billion that the Treasury spent with MPs’ approval between July and August.