Tim Wood
Telkom executives are letting the market know in less than subtle ways that a public listing may not be a good idea in present circumstances. It’s misleading and talks to the wrong book and strategy.
The concern is that listing in a poor market will cheat the monopoly out of some easy money. Much as equity financing has been all the rage for the past three years, Telkom doesn’t have difficulty raising funds, so losing the odd R100-million on flotation doesn’t matter in the great scheme of things.
The only real beneficiaries of timing a listing to perfection are the underwriters and sundry advisers. Clearly their motivations are already coming to the fore.
It must be resisted. Telkom entered this world as a public good and must exit parastatal life in the same way. The purpose of the listing is to prime Telkom for open competition and to allow public participation in the profits of the services they have so long been gouged for.
A listing driven primarily by pricing concerns runs the risk of emulating what has happened with other technology, media and telecommunication stocks where the companies fail to sustain the premium ratings for years to come if ever while the advisers walk away with no obligation beyond pocketing the fees and profits on shares flipped on debut. There’s every reason to fear a pork barrel mentality because the connection between Telkom and its profit source has been severed for so long. It’s everyone’s and no one’s money.
There’s no doubt that the space for telecom equity financing is crowded this year, particularly in Europe, where Telkom will command most attention outside of South Africa. Foreign investors are already awash in telecom stock and debt, the latter a source of considerable concern if the spreads are anything to go by.
Dutch wireless operator KPN Mobiel comes to market later this year in a deal valued at R28-billion, while cross-channel rival British Telecom has plans to spin off 25% of its mobile division in June for R56-billion.
Then there’s German parastatal Deutsche Telekom, which withdrew the initial public offering of T-Mobile last year but won’t miss the boat again in the third quarter of this year. Italian firm Albacom is also expected to float around the middle of the year.
Those listings face genuine pricing concerns. Debt financing for wireless services is becoming prohibitive as scepticism about the prospects of high bandwidth cellphone networks increases. Raising pots of money through a bourse is a priority if these firms are to survive, let alone prosper.
Telkom has few of those concerns and it must lead the relationship with its advisers, not vice versa. Investors have sent an unambiguous signal that they will back Telkom at the right price. In late February Telkom completed a gigantic R2,7-billion issue of bonds that was twice oversubscribed at a much lower coupon rate than BOE Bank could muster in the same week.
Clearly there is a hunger for a South African telecom listing. MTN and Vodacom offer indirect exposure but the imputed value will lie dormant until those companies approach a listing. With Telkom, investors have the security of a pretty safe bet unless management really gets it wrong. It will hardly suffer the introduction of competition since the proposed market will be limited and structured to favour it.
Telkom must be bold and go ahead with its listing. Indeed, even if the market is poor, the opportunity to incentivise staff with juicily priced options should not be missed, nor should the prospect of annual reports with a steadily rising graph of the share price. Delaying the listing creates a vicious circle of distrust for the company and the country; proceeding a virtuous one where not only the press is good, but the whole country benefits from a national asset that finally operates according to market rhythms rather than political impulses.
The only caution needed is in dealing with the advisers whose sole interest is the take-home cheque. Perhaps the best discipline would be to force them into a double jeopardy deal: the underwriters should pay R10-million to Telkom for every percentage point above or below the issue price that the shares close at on debut. It must be a Goldilocks listing just right.
Ah, but that would be a one-way bet against the financial institutions! Yes, see how the shoe doesn’t fit so comfortably on the other foot?