The government may be forced to pump Sh6 billion of taxpayer’s money into Telkom Kenya in what is turning out to be a nightmarish privatisation scandal.
The Treasury is fighting to hang on to its dwindling shareholding in the troubled company, 51 per cent of which was sold to France Telecom.
If more money is not poured in, the government’s stake in what used to be a giant parastatal, built over many years with Kenyans’ taxes, will continue to be watered down.
The Daily Nation has learnt that Telkom Kenya has just written to its two shareholders — the government of Kenya and France Telecom — requesting a massive Sh13.9 billion cash injection.
The company says it needs the cash to fund pressing operational needs and pre-empt a deepening financial crisis.
Telkom Kenya is deeply in the red. In the new request for a shareholder bailout, the company says it needs the cash urgently for the following reasons:
- Sh4.5 billion to fund operations for the second quarter of the year.
- Sh2.5 billion to refinance a Kenya Commercial Bank loan and overdraft facilities maturing on May 31, 2013.
- Sh3.6 billion to refinance a Standard Chartered Bank loan.
- Sh3.3 billion to refinance a bridge loan by the subsidiary of France Telecom, Orange East Africa, which must be paid on June 28, 2013.
Telkom Kenya has also requested the shareholders to provide it with guarantees to facilitate a $117 million loan it is negotiating with Standard Chartered Bank Ltd.
It is hardly six months since the perennially troubled firm sought financial support from its shareholders.
In December last year, the government was forced to participate in an expensive restructuring in which, at a huge cost to the taxpayer, it not only pumped into the company Sh2.5 billion in fresh shareholder loans, but also wrote off more billions in past shareholder loans.
This latest request for shareholder support is the clearest sign so far that the highly touted balance sheet-cleaning exercise which was supposed to return the company to a profit-making path did not make even the slightest improvement in the company’s financial fortunes.
In that transaction, both the government and France Telecom converted Sh23 billion of shareholder loans into equity in a deal that saw the government’s stake in the company reduced from 49 per cent negotiated during privatisation in 2006, to a mere 30 per cent.
In other words, not only is the government having to pour public money into this commercial black hole, but if the trend continues, strategic assets developed with public money are likely to completely change hands with no benefit to the public.
With the government currently facing huge demands for money to fund the new system of devolution and grappling with how to maintain the high level of infrastructure-spending started by the administration of retired President Mwai Kibaki, it is unlikely that the government will agree to pump money into what has become a bottomless pit. (EDITORIAL: No more cash for Telkom)
Indeed, the ranking of the current priorities, having to pump more billions of shillings of shareholder loans in an entity effectively under the ownership, control and management of a foreign company, is not likely to be an attractive proposition to the new administration of President Kenyatta.
In effect, the French investors have more or less cornered the government.
Much lower figure
If the government opts out of this latest request for shareholder loans, its stake in the company will drop to a much lower figure. This will push Kenya into an even weaker bargaining position in future, especially in the event circumstances force the two shareholders of the deeply insolvent company to strip its assets or sell the company in parts to recover the money they have pumped into it since it was privatised.
It must be remembered that, despite its weak balance sheet, Telkom Kenya is still a very rich company with hot-cake assets such as property, equipment, a national fibre optic network paid for by the Kenyan taxpayer, a CDMA mobile phone network and a 3G licence.
Telkom Kenya’s is a textbook case of a privatisation deal gone awry.
When the government put the company on sale, the main objective was to stop the perpetual pumping of taxpayers money into what had evolved into an inefficient monolith.
Telkom Kenya was privatised because the company didn’t have the resources to invest in new technology.
France Telecom was touted because it had solid capital to invest and turn Telkom Kenya into a company capable of competing with nimbler, modern players.
Indeed, the original plan was that part of the 49 per cent stake which the government retained after privatisation would be sold to the public through the Nairobi Stock Exchange. Some 19 per cent of that has already been gobbled up and France Telecom now owns 70 per cent of the company.
Seven years down the line, none of the objectives for which Telkom Kenya was sold has been met. The company is permanently knocking on the door of the government for massive shareholder loans.
Instead of injecting fresh capital into the business, France Telecom has concentrated on providing shareholder loans and short-term credit to the company.
Most of these loans have been extended to Telkom Kenya by France Telecom subsidiaries.
The upshot is that Telkom Kenya now finds itself with huge loans owed to related parties.