State in Sh588m bailout bid for Telkom Kenya

Telkom Kenya is set to receive a Sh588 million bailout from the Treasury to pay salaries and settle pending bills if MPs approve a request for the amount made by the Treasury through a supplementary budget tabled in Parliament on Thursday.

The Treasury has requested Parliament to allocate Telkom Kenya Sh90 million for salaries, Sh338 million for pending bills, including travel agency fees and another Sh110 million for unspecified expenses.

This is the latest cash request to Parliament made by Treasury secretary Henry Rotich in an effort to bail out Telkom Kenya which has continued to sink deeper into the red.

Telkom is plagued by a combination of losses and a drop in revenue that has negatively impacted on the telco’s cashflows, prompting shareholders to pump in more cash and write off its debts.

The amount that the Treasury has requested is however far below what the management had asked its two shareholders – France Telecom which owns 70 per cent of the company and the Kenya government which holds a 30 per cent stake-- to refinance Telkom’s cashflow needs for quarter four of the year amounting to Sh2.08 billion.

This means that, even if granted in total, the bailout cash will only relieve the firm in the short term.

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The firm which was a State parastatal before privatisation in 2007 has previously also made a Sh17.8 billion cash call to repay a loan advanced by parent firm France Telecom’s subsidiary, Orange East Africa.

News of the bailout request comes weeks after it emerged that Vietnamese firm Viettel had pulled out of talks to buy out Telkom Kenya after the government failed to honour some of its requests, key among them being that it should acquire up to 80 per cent of the telco.

France Telecom had hoped to return the loss-making firm to the profit zone by 2010 and list at the Nairobi Securities Exchange by next year — a target that has been made impossible by its stay in the loss-making territory.

Telkom Kenya has continued to make huge losses despite efforts by the two shareholders to clean up its books. The firm has partly tried to shore up its accounts by selling assets to boost cash reserves that have over time been eroded as competition intensified and call tariffs dipped.

Telkom Kenya has in the past sold 11 houses valued at Sh80 million in Gilgil, Nakuru County.

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 MPs claimed that taxpayers lost at least Sh30 billion in the conversion of shareholder loans to equity.