Where to for Telkom after Korean no-deal?

2012-06-09 09:46

Cabinet’s decision to reject the Korea Telecom investment in Telkom was based on the Koreans not putting enough on the table and not, as has been speculated, because of South African nationalistic fervour.

The telecoms parastatal on Friday posted a R179 million profit after tax – a 93% decline year on year – to end a controversy-filled week following Cabinet’s unexpected decision to reject the bid for a 20% stake in Telkom.

Communications Minister Dina Pule said the offer of R3.3 billion for 20% was not enough to provide Telkom with the financial muscle it needed to improve its balance sheet and update its technology offerings.

“Cabinet will consider all options,” she said, inviting shareholders to come forward with alternative proposals.

“A review of the options available to Telkom has begun. We are looking at a three-month horizon – a time frame set by Cabinet. Cabinet will then propose a way forward in the interests of the company and the country.”

Though Cabinet came under fire from the DA and Cabinet Minister Trevor Manuel for rejecting the deal, many industry players agreed with Pule.

Cell C chief executive Alan Knott-Craig told Business Day: “The government was right to be cautious as most telecoms companies are foreign owned and I am not sure that is such a good thing. What we need is good management, but that does not have to come with an equity stake.”

Steve Ambrose, MD of Strategy Worx, added: “I do not believe that Telkom needs Korea Telecom.

Technical expertise is there for the taking from any of the highly competitive vendors of all the technologies required by Telkom.”

The state owns 39.8%of Telkom, the Public Investment Corporation 10.9%, and the rest is held by a diverse group of institutional shareholders and individuals.

The state said that it would sell stock to existing shareholders or raise debt to fund a return to higher profitability for Telkom – which is in need of a liquidity event and infrastructure upgrade.

Telkom, Africa’s largest fixed-line telecoms operator, put on a brave face this year amid adverse trading conditions.

After sustained bad news on the market as shareholders dumped the share, Telkom’s share price lost more than 6.5% this week, falling to its lowest level since September 10 2003.

In the past year, the share has lost 45% and traded for most of this week at a low of R20. The share closed on Friday at R20.30.

Experts said that a triangle of factors accounted for the decline: the rejection of Korea Telecom’s offer; a looming R4.4 billion fine by the Competition Commission for uncompetitive behaviour after Telkom was found to have unreasonably refused other ICT operators access to its facilities; and a R10 billion investment gone bad in Nigeria a few years ago.

Telkom’s management, however, remained bullish about the future.

Said chief executive Nombulelo Moholi as she announced the company’s results on Friday: “Telkom faces many challenges at the moment, but we will stay calm, determined and focused on delivering on the promise of our business and strategy.

“The group financial results for the year under review reflect our challenges, but we took a number of significant steps,” Moholi said.

“Our results for the year include an R896 million loss relating to the disposal of Multi-Links (in Nigeria), and an impairment loss of R569 million relating to iWayAfrica goodwill and assets.

“Headline earnings per share declined 33%.

This is mainly as a result of the investment made in our mobile business as well as R605 million additional depreciation as a result of the review of the useful lives of existing network equipment as we invest to transform to a commercially led, next-generation network.

“This loss was partially offset by R739 million voluntary employee severance package costs included in the prior year.”

She added: “The group faced continued erosion of the traditional fixed-line business, with fixed-line traffic revenue decreasing by 8%.

“Demand for faster products at lower prices continued to put our data revenue under pressure.”

Telkom reported turnover of R33.1 billion, operating expenditure of R31.3 billion and headline profit for the year of R1.658 billion.

The mobile side posted a subscriber increase of more than 200% as its relatively new mobile unit, 8ta, gained traction in this hotly contested sector.

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