Nigeria: South Africa's Telkom Suspends Financing of Multi-Links

Telecoms

Last Wednesday it looked as if the mother company of struggling Multi-Links, Telkom of South Africa may have tacitly abandoned the company to its fate, following losing a $250 million suit to tower leasing company, Helios Towers.

According to Agency reports, the South African fixed-line operator, Telkom, says it is suspending funding of the Nigerian subsidiary, consequent upon collapse of sales arrangement with Visafone Communication. The South African company said it would cut off funding to the Nigerian subsidiary which has struggled to find its feet in the highly competitive Nigerian telecommunication market.

Telkom, which also on Monday reported a 35 per cent drop in full-year profit, said it had decided to stop funding Multi-Links business, after a Lagos High Court ruling prevented the planned sale.It has been desperate to exit Multi-Links to focus on its new mobile business at home, where it faces stiff competition from heavyweights such as MTN Group and Vodacom

"We have stopped the cash-burn in Nigeria," Chief Executive Officer (CEO), Nombulelo Moholi told analysts at an earnings presentation. It would be recalled that Telkom had in April this year said it would sell part of the Multi-Links business to Visafone Communications for $52 million. It however revealed that sale had been dropped, following the court ruling.

Helios Towers Nigeria, which builds and leases the mobile towers used by telecoms, had sued Telkom for about $250 million, claiming the South African firm walked away from 10-year leases after just three years.

Telkom had said the leases were invalid, an argument the Nigerian court ruled against this month. Helios is backed by private equity group Helios Investment Partners. Moholi said she would not speculate on whether Mutli-Links would ultimately be liquidated.

"What Helios may force them to do is to liquidate the business," said Martin Dullaart, an analyst at Macquarie First South Securities. "It's not really a legal issue so much as a negotiating position."

Hit by the decline in traditional telephony and by stiff competition, Telkom has been struggling to rein in costs and turn itself around. It is focusing on its new mobile unit, 8ta, as part of a plan to become a "converged" telecom operator offering mobile, fixed-line, broadband and wireless Internet.

But that is proving a costly exercise. The mobile business is unlikely to turn a profit on an EBITDA -- earnings before interest, tax, depreciation and amortisation -- basis until 2014, Acting CFO Deon Fredericks stated.

Telkom said the mobile business booked an EBITDA loss of 1.1 billion rand ($161.7 million) in the year to end-March. Fredericks said a similar, or slightly larger loss, was expected at the unit this year.

"The big uncertainty is on mobile," said Macquarie's Dullaart. "There are certain circumstances under which it can be a viable, break-even business which shores up revenue losses in fixed line."

Africa's biggest fixed-line operator said normalised headline EPS for the year to end-March totaled 444.9 cents, compared with a restated 686.7 cents a year earlier. Headline EPS, the main measure of profit in South Africa, excludes certain one-time items.

Telkom said last month it expected to post a decline in earnings of 25-45 percent, citing the costs of its new mobile business 8ta, and severance packages.

The company said about 2,000 employees had so far taken severance packages. Shares of Telkom, nearly 40 per cent owned by the South African government, were down 1 per cent at 1223 GMT, compared with a 0.2 per cent gain in Johannesburg's All-share index. .