Telkom Kenya to go under the hammer

France Telecom has put Telkom Kenya on sale, becoming the second mobile phone operator to exit the market this year.
yuMobile is also up for sale.

The French conglomerate that owns majority of shares in Telkom, has formally informed the government that they are currently in the middle of negotiations with potential buyers to take control of what was once one of the largest employers in Kenya.

This is seven years after the firm, which operates under the Orange brand, was sold to the French.

Depending on how the negotiations between France Telecom and the new buyer progress- the French investors could be out of the company by June 2014.

France Telecom owns 70 per cent of shares in the company. The government is the other shareholder with a 30 per cent stake.

Well-placed sources exclusively told the Nation that the French had informed the government that they intended to enter into a transition agreement with the new buyers to ensure that the change in ownership was smooth and to maintain the quality of service to subscribers.

TEETERING TO INSOLVENCY

The French will be exiting, leaving behind a company teetering towards insolvency.

In 2013, annual revenues stood at Sh9.4 billion, compared to revenues of Sh12 billion per month for Safaricom, the largest mobile company.

The average revenue per user was Sh200, compared to Safaricom’s Sh546.

Subscribers were 2.2 million, compared to 5.5 million for Airtel, 2.2 million for yuMobile and 21 million for Safaricom.

Telkom’s earnings before interest, tax depreciation and amortisation- was a negative Sh2.6 billion.

In 2012, and in accordance with the shareholders agreement, the two shareholders were called upon to fund a restructuring that was supposed to get the company out of insolvency.

But the government failed to put in its share of the cost of restructuring and its shares were diluted from the original 49 per cent to 30 per cent.

Two years later, the company is headed back to insolvency.

Capital and reserves have deteriorated from Sh16.6 billion, following the balance sheet restructuring, to Sh7.5 billion in December 2013.

Who will want to buy Telkom Kenya? The value proposition is in its spectrum - the airwaves that carry communication signals and the infrastructure.

What is clear, however, is that getting   a buyer within the timeframe the French investor has prescribed may not be as easy considering the tacky legal issues surrounding Telkom Kenya.

For instance, former employees recently won a Sh2.5 billion suit against the company in a trial popularly known as the “Ochanda Case”.

There are two similar cases with former employees whose financial implications are estimated at Sh1.8 billion.

Another outstanding issue is the fate of an 87-acre piece of land situated near the showground in Nairobi.

STAFF HOUSING SCHEME

In 2000, the defunct Kenya Posts and Telecommunications Corporation, through -- the Postel Housing Corporation -- decided  to develop a  staff housing scheme on the property, and contracted a developer  by the name Exclusives Estate Ltd to do the job.

Although the development did not happen, Exclusives went to court claiming 60 acres of the said property. That matter is in arbitration.

Meanwhile, in 2011 Telkom Kenya in a bid to sell the land, entered into a legal agreement with a company by the name Aftraco for Sh1.4 billion.

The transaction was stopped by the High Court. Several assets inherited from KPTC are also yet to be transferred to Telkom Kenya.