Vietnam eyeing troubled Telkom

Telkom directors Olivier Froissart, Daniel Devestre and Sebastian Fayard last November at Parliament Buildings during the Public Investments Committee investigation into the declining government shareholding in Telkom Kenya. FILE PHOTO

What you need to know:

  • France Telecom gave the following reasons for its decision to quit. First, regulator Communications Authority of Kenya has not ensured a level playing field with regard to stopping price wars.
  • Secondly, Telkom Kenya is regularly subjected to libellous newspaper articles, some of them based on documents leaked by its own directors.
  • Thirdly, they did not like the way the PIC summoned and questioned its top management over a transaction that led to government shareholding being diluted from 49 to 30 per cent.

First, it was the French who bought Telkom Kenya — once an employer of 23,000 people — from the government in 2007.

Now indications are that the ownership of this one time giant parastatal is set to be offloaded to the Vietnamese.

The Nation has learnt that top officials of the Vietnamese company Viettel Group, are in Nairobi to seek government support in their bid for the 70 per cent stake France Telkom owns in Telkom Kenya.

Owned by the Vietnamese military, Viettel Group is ranked among the top 15 telecommunications companies in the world. It says it has a global customer base of 80 million with aggregated revenues of $10 billion (Sh890 billion) in 2013. In Africa, it has operations in Tanzania, Mozambique and Cameroon.

Extend licences
Impeccable sources say that the Vietnamese, who had earlier indicated interest in buying Telkom Kenya in a letter to the government in August, have now tabled a new request.

First, that the government extends all telecommunications licences held by Telkom Kenya for another 15 years. Second, and perhaps more controversial, the government sells 10 per cent of its stake in Telkom Kenya so that Viettel can assume a dominant 80 per cent position in the company.

Viettel argues that since it will pump billions into reviving the company in new shareholder loans, this will shield the government from putting more money into the financially troubled company.

But the proposal to dilute government shareholding to below 30 per cent may turn out to be politically unpalatable — considering that President Kenyatta’s administration has more or less suspended privatisation until the proposed Government Investments Corporation is in place.

The French are exiting a company tottering toward insolvency. As at August 31, the losses were Sh6.1 billion. Debt to equity ratio is at a level of 16 times, a figure way above the statutory limits.

At a recent board meeting, the management proposed that the shareholders — France Telecom and the Kenya Government — be approached to refinance a Sh17.8 billion loan from France Telecom’s subsidiary, Orange East Africa.

In addition, it requested that shareholders refinance the cash flow needs for Q4 (quarter four of the year) by Sh2.08 billion. And to compound the matters, the two shareholders are yet to agree on how to handle the Sh1.2 billion High Court award to former employees retrenched in 2006.

Orange Telecom is the second investor to leave the telecommunications market, after the exit of India’s Essar, the former operators of yu-mobile.

REASONS TO QUIT

France Telecom gave the following reasons for its decision to quit. First, regulator Communications Authority of Kenya has not ensured a level playing field with regard to stopping price wars.

Secondly, Telkom Kenya is regularly subjected to libellous newspaper articles, some of them based on documents leaked by its own directors.

Thirdly, they did not like the way the PIC summoned and questioned its top management over a transaction that led to government shareholding being diluted from 49 to 30 per cent.

Fourth, Information and Communications Cabinet Secretary Fred Matiang’i had given notice to cancel a contract under which it managed the National Fibre Optic Infrastructure.

Finally, the company had been confronted by a legal dispute with retirees of the defunct Telkom Kenya, running into billions of shillings.
After seven years, the partnership between the French company and the government has not been rosy.

Telkom Kenya had morphed into an entity forever demanding capital and shareholder loans while servicing expensive loans extended by subsidiaries of the very same majority shareholder.

In 2012, the government and France Telecom went into an expensive restructuring meant to clean its balance sheet and put the company on a sustainable path to profitability.

It did not happen. The company could neither grow its top line nor compete with its peers in terms of capital expenditure. It continued to make huge losses.