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Telkom puts Sh3.8bn land on sale ahead of Airtel deal

Mugo Kibati.
Telkom Kenya CEO Mugo Kibati. FILE PHOTO | NMG 

Telkom Kenya has put on sale Sh3.87 billion properties spread across the country as it seeks to raise cash for contribution to its upcoming merger with Airtel.

The telecommunications firm has hired property dealing firm, Axis Real Estate, to dispose of the prime assets sitting on about 17.8 acres of land.

Telkom said Wednesday it has requested its shareholders’ approval to raise the cash -- including through sale of its prime property -- to meet its part of the merger deal.

“Under the transaction, Telkom is required to contribute funds in cash to the combined entity. Both entities in the transaction will contribute cash, for purposes of the transition and the integration of systems and network elements,” Telkom said in a response to Business Daily queries.

The telco did not disclose the amount it is required to contribute, but said it has put all the 32 properties on sale to ensure it raises the money on time.

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The property disposal is intended to preclude the option of a bank loan to fund the merger.

“The intention will be to market a list of properties, with the prospect of selling a number that will enable the business raise just the amount of funds required,” said Telkom.

Out of the 32 properties on sale, only six are empty plots while the rest are developed as commercial buildings and telephone exchanges.

Biggest property owner

Telkom Kenya, which is 40 percent owned by the Treasury and 60 percent controlled by private equity group Helios, is one of Kenya’s biggest property owners given its legacy as a State corporation.

Three of the properties, in Ruaraka, Muthangari and Lang’ata, are freehold while the rest are leases from the government and counties but owned by Telkom.

The leasehold properties include those in Bungoma, Embu, Kirinyaga, Kiambu, Kisii, Meru, Murang’a and Kajiado counties while in Mombasa the Makupa Exchange’s lease is held by Yusufali Jiwaji.

On February 8, 2019 Telkom and Airtel announced the signing of a binding agreement to merge their respective mobile, enterprise and carrier services businesses in Kenya into Airtel (to be renamed Airtel-Telkom).

Both companies have been disposing of assets in recent years to keep their businesses afloat, as stiff competition from market leader Safaricom has kept them unprofitable.

Last year, Telkom Kenya sold its 723 masts for Sh17.16 billion to American Tower Company (ATC), according to fillings at the US Securities and Exchange Commission.

Airtel on the other hand sold 1,100 mobile telephone masts to a UK infrastructure firm for Sh19.5 billion in 2014.

In 2017, Bharti Airtel exited the tower business altogether, divesting from its telecom tower company, Bharti Infratel.

The sale of land and offices comes days after liability claims were made against the two telcos by their former workers.

The merger has been dogged by claims from the former employees amounting to Sh8.2 billion.

Sh1 billion claim

Fifty two former Airtel employees wrote to the Communications Authority of Kenya (CA) seeking to stop the merger over a Sh1 billion claim against the firm.

They say the merger will make it difficult for them to recover the Sh1 billion should they win the labour dispute in which they claim they were wrongly sacked in January 2016.

Telkom Kenya, which retrenched more than 2,600 employees, may also be forced to meet dues claimed by the employees in a Sh7.2 billion case that the former employees won in 2017.

A four-member tribunal had established that Trustees of Teleposta Pensions Scheme and Provident Fund had underpaid the 948 retrenched Telkom Kenya workers’ pensions.

Telkom also announced a new round of retrenchment to pave way for the merger, axing 575 workers who have been declared redundant.

The company issued a one-month notice of redundancy, with effect from July 31, 2019, to its employees, informing them of the intention to terminate their employment as a result of the impending transaction.

“This is in line with the law and is a process that has to be undertaken before employees are able to move to any other entity and is still subject to regulatory approvals,” the firm said in a notice to the press.

Advertise and interview

It said that subsequently, the intention is to advertise and interview Telkom employees for positions in the Combined Entity and its outsourced partners.

“Engagement of these employees will be guided by the Combined Entity’s recruitment criteria as well as the mapped positions therein,” said Telkom.

Airtel-Telkom, the merged entity, is set to command 34 percent of the market share in an attempt to challenge Safaricom’s dominance.

Telkom has been losing market share, according to CA data. The telco lost 400,000 subscribers in the three months between January and March this year.

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