Kenya: Govt in Dilemma Over Transfer of TEAMS Shares to Private Investors

Mergers, Acquisitions and Financial Results

The Kenya government is in a dilemma over how to transfer billions of shillings' worth of shares in the state-funded fibre-optic operator TEAMS Ltd to private companies when the multimillion-dollar cable comes into commercial operation in June next year.

TEAMS Ltd is a government-owned special purpose vehicle created to develop a fibre-optic sea cable connecting the East African region through Mombasa to the world's fibre-optic communications backbone via Fujairah in the United Arab Emirates.

The shares of the company are to be sold to users of the cable when it commences commercial operation in July next year. The EastAfrican has learnt that the Ministry of Information and Communications (which, together with the Communications Commission of Kenya, is managing the project on the government's behalf), has sought direction from the Treasury on whether to subject the sale of shares of the SPV to the new and lengthy but more transparent Privatisation Act, or to transfer the shares to private companies under the old privatisation regime.

On the surface, this would appear to be a mundane issue. But in reality, it is pertinent because of the need to close loopholes that insiders may employ to transfer the shares of this potentially highly profitable company - operating what may become Kenya's first high-capacity data connection to the rest of the world - to politically connected operatives.

The history of the opening up of the telecommunications sector is littered with cases of manipulation of privatisation to allow insiders and connected operatives to acquire shares they have not paid for. (see first story in On the Money above that covers Mobitelea Ventures Ltd.

In the case of Teams, the government last year procured 12 investors who will be allotted shares when the cable goes into operation. Although most of the companies allotted shares are well-known telecommunication companies, a number are nevertheless names that don't resonate.

The lion's share of the company has been allocated to Safaricom Ltd - a 20 per cent stake. In the second category are Econet Wireless Kenya Ltd (10 per cent), France Telecom, owners of Telkom Kenya (10 per cent), Kenya Data Networks (10 per cent), Wananchi Telecom Ltd (10 per cent), Telkom Kenya (10 per cent), Jamii Telecom (3.75 per cent) and Gilat Satcom (1.25 per cent).

The last category are names that are not too well-known, including an entity by the name Equip Ltd (1.25 per cent), Internet Research (1.25 per cent) and Inhand Ltd (1.25 per cent). The government will retain a 20 per cent stake in the company.

Under the present arrangement, the chosen investors must pay 5 per cent of the project's funding requirement of $110 million, which will be put in an escrow account at Standard Chartered Bank of Kenya Ltd. The balance of what they are expected to pay is to be remitted when the parties consummate both a share-subscription agreement and a shareholders' agreement in April.

Contrary to the general impression, Etisalat of the UAE has no direct shareholding in TEAMS. What it has signed with the government is a construction and maintenance agreement and a supply contract.

The East African