Telkom Kenya Still Needs Million From Shareholders to Stem Cashflow Problems
Continued Government funding for the newly privatised Telkom Kenya has stirred up controversy locally in a report in the East African. The company is expected to get a payment of US$92.41 million in three tranches between now and July this year. However, restructuring costs are only estimated at US$72.72 million.
Telkom, now under the management of France Telecom subsidiary Orange East Africa SA, has asked its shareholders to pump a whopping Ksh6.1 billion ($92.42 million) into the company in the form of shareholder loans to deal with its cashflow problems.
Last year, the French multinational paid the government $269 million for a 51 per cent stake in the largest telecommunications company in the country - and in the process took control by assuming five out of nine directorship slots and appointing a new chief executive, Dominique Saint-Jean.
Billed as the most successful privatisation transaction in the country's history, the deal was touted by the government as marking the end of Telkom's dependence on the exchequer for funds.
Expectations were high that the foreign investor would take advantage of the company's strong and clean balance sheet to raise capital and immediately roll out a massive expansion programme.
Which is why the company's request to the state to pump more money into the former parastatal has confounded observers.
The EastAfrican has learnt that Telkom has requested that the money be released in tranches - the first, an amount of Ksh4.3 billion ($65.15 million) by March this year; the second tranche, Ksh1.3 billion ($19.69 million), in May and the last, Ksh0.5 billion ($7.57 million) in July.
The company is projecting a negative cashflow position from September this year. The single largest cash outflow within the current financial year is expected to be a Ksh4.8 billion ($72.72 million) payment on restructuring costs.
Until recently the largest state-owned company in Kenya, Telkom's privatisation came at a high price to the government, characterised by very complex transactions involving multiple book entries.
For instance, the Treasury had to actually pay Telkom for the 60 per cent shares it formerly owned in mobile phone company Safaricom. According to an agreement that the parties signed, the shares were transferred to the Treasury at a consideration of Ksh63 billion ($954.54 million).
However, the Treasury did not actually pay Telkom Kenya the full amount for the Safaricom shares, because most of that money was offset by the monies Telkom owed the government. One of the debts that was offset was a sum of Ksh15 billion ($227.27 million) in tax arrears that Telkom owed the Kenya Revenue Authority.
But the greatest proportion of the money was offsets made with respect to expensive foreign-exchange loans that the government paid off on behalf of Telkom Kenya several years ago. These were mainly supply credits tied to procurement of equipment from specific countries, these loans and credit facilities had been extended to Telkom Kenya and its precursor, the Kenya Posts and Telecommunications Corporation, by companies from Italy, Norway and Canada.
Also offset was an amount of $33 million that the government advanced Telkom to enable it to pay for its part of Safaricom's licence fees. Under the agreement, the government was obliged to remit the sum of Ksh5.8 billion ($87.87 million) to Telkom to enable it to repay a loan it acquired from a syndicate of commercial banks last year and that was used in paying terminal dues of retrenched staff. The Treasury was also to pay Ksh8 billion ($121.21 million) to enable Telkom to cover a deficit in the employees pension scheme.
The government also has to hand over a sum of $55 million to Telkom to allow it to pay the Communications Commission of Kenya for a mobile telephone licence. What this state of affairs shows is that the state is likely to continue playing a major role in the company.