TEAMS share allotments to be reviewed by the Kenyan Privatisation Commission

Mergers, Acquisitions and Financial Results

The newly established Privatisation Commission has thrown a spanner in the works on allotment of shares to 12 private firms in the entity TEAMS Ltd -- the state-funded multi-billion fibre optic cable being constructed between Mombasa and Fujaira in the United Arab Emirates.

The East African has learnt that a three-man sub committee appointed by the commission last month to look into the circumstances and propriety of the manner in which these shares were allotted to the 12 firms has now recommended that subscriptions of the shares be conducted in a more fair and transparent manner and in accordance with the Privatisation Act.

Early this year, a committee steered by the Ministry of Information and Communications allotted shares to 12 firms in a list that includes large and well-known companies such as Telkom Kenya, Safaricom Ltd and Econet Wireless but also unknown entities such as Inhand Ltd, Equip Ltd and Fibre Network (Uganda) Ltd.

Conventional wisdom in the marketplace is that whoever buys shares in TEAMS will also be among the small group of telecommunications firms who will have the opportunity of reselling broadband services to other operators.

The justification of allotting the shares to the 12 firms in the manner it was done was that -- at the time -- the Privatisation Commission was not in place and that existing laws provided for on-going privatisation projects to continue.

Although the 12 companies neither paid nor signed shareholders agreements with the government, they were made to sign escrow agreements and to deposit a total of $2.7 million to Messrs Standard Chartered Bank, the arrangers of the transaction.

Well-placed sources told The EastAfrican that the three-man sub committee, led by commission members James Gacoka, Wainaina Kenyanjui and Solomon Kitungu found that the structure that presided over the allotment of shares to the 12 companies had not been approved by the Cabinet.

And, contrary to the belief that the shares were allotted when the new privatisation law was not in place, Gacoka, Kenyanjui and Kitungu found that the escrow agreements that brought on the 12 potential subscribers to TEAMS were made at a time when the Privatisation Act was indeed already in force.

The trio also found that even though the 12 companies had deposited monies in the escrow accounts, the escrow agreements do not bind the government to sell the shares of the company to the 12 companies.

They said that the government had the liberty to bring in other shareholders and veto decisions as long as it does not replace the companies which have already deposited money in the escrow accounts.

The commission noted that even though the Attorney General had advised that the allotment of shares to the 12 companies could not be reversed, citing a transition clause in the Privatisation Act, his opinion was not strong in this case because the allotment of the shares to the 12 companies did not have Cabinet approval and therefore did not follow the correct procedures even under the old law.

Teams is heavily funded by the government with a whopping $12 million spent so far by the State. In addition, the government has in the current financial year allocated another $15.2 million for the cable project.

Furthermore, the Communications Commission of Kenya (CCK) has deposited $15.2 million in an interest earning account and committed to top up the said account with $1.5 million every month in order to guarantee the construction of the project.

It is still not clear how the findings of the Privatisation Commission will affect the completion date of the project. But the development has clearly cast uncertainty over the allotment of shares to the 12 companies.

According to available documents, the shares of Teams Ltd have been allotted to the following firms: Safaricom (20 per cent), Telkom Kenya (20 per cent) Econet Wireless (10 per cent) Wananchi Online (10 per cent), Kenya Data Networks/Celtel (3.75 per cent) Jamii Telkom (1.25 per cent), Access Kenya (1.25 per cent), Flashcom (1.25 per cent), Fibre Network Uganda (1.25 per cent) Inhand (1.25 per cent), and Equip (1.25 per cent).

In their report, the sub committee of the Privatisation Commission noted that the arrangement put the 12 companies at an advantage because shareholders of Teams will acquire broadband capacity "at cost" for their own use and resale.

"This aspect gives them a competitive edge on other suppliers of bandwidth and will enable Teams investors, who are also capacity resellers, to capture a significant share of the market," says a report by the commission.

The allotment of the shares to the 12 has been a controversial issue all along. In April, the matter was investigated by the Kenya Anti Corruption Authority. The question as to whether the sale of shares of Teams should be handled under the new Privatisation Act has also been controversial.

In March last year, circumstances forced the Permanent Secretary in the Ministry of Information and Communications Dr Bitange Ndemo, to write to the Treasury to seek guidance on whether the allotment of shares TEAMS to the private firms should be conducted under the new Privatisation Act.

The East African