Cabinet approves plan to convert Telkom loan into shares
Telkom Kenya’s CEO Mickael Ghossein. Finance assistant minister Oburu Odinga told MPs on May 16, 2012 that the government had an agreement with France to help Telkom Kenya repay its loan. Photo/FILE
What you need to know:
- The government, which owns 49 per cent of Telkom Kenya, was in June forced to bail out the debt-ridden phone operator by extending to it Sh2.5 billion.
- The company also received Sh5.1 billion from the other major shareholder, France Telecom.
- It is unclear whether France Telecom will be receptive to the deal. A query to current Telkom Kenya CEO Mikhael Ghossein on the matter yielded no comment.
The Cabinet has approved a plan to convert loans extended to Telkom Kenya into shares in an effort to restore the company’s competitive edge in the market.
The government, which owns 49 per cent of Telkom Kenya, was in June forced to bail out the debt-ridden phone operator by extending to it Sh2.5 billion.
The company also received Sh5.1 billion from the other major shareholder, France Telecom.
However, in a brief send to newsrooms on Thursday, the Cabinet said it had approved a plan to convert all its shareholder loans into equity as part of a plan to recapitalise and restructure the balance sheet of the company.
In return, France Telecom would also have to convert its loans to equity. “This will enable Telkom Kenya to properly capitalise and regain competitiveness in the market,” reads the brief in part.
It is unclear whether France Telecom will be receptive to the deal. A query to current Telkom Kenya CEO Mikhael Ghossein on the matter yielded no comment.
“I cannot really comment on this. It is a matter between shareholders,” said Mr Ghossein.
Analysts say conversion of government debt into equity would free up the company to borrow funds from the markets for investment.
Additionally, the company will now be able to focus its resources on a detailed growth plan, which will be submitted to the government.
“Under the circumstances, there is very little chance that they can pay back the loan. Converting it into equity gives them a little bit of flexibility to improve services and infrastructure that might bring them back to profitability,” noted Standard Investment Bank (SIB) analyst Eric Musau.
Earlier this year, it came to light that the company was sinking in debts of at least Sh51 billion after it sought a Sh10 billion bail-out from the Treasury.
Sh38 billion of this debt was owed to its parent company, France Telekom. In 2011, the company made a historic net loss of Sh18 billion, after making sales of Sh9.2 billion.
Telkom Kenya attributes the debt to price-wars that engulfed the Kenyan telecommunication market in 2010.
