With the words ”the train has left the station — there’s no turning back now”, the South African government on Thursday launched what is considered its biggest privatisation venture to date — the long-awaited initial public offering (IPO) of shares for 25% of telecommunications giant Telkom.
But while many considered it good news, breathing a huge sigh of relief that the IPO was taking place as promised before the end of the current fiscal year, the markets responded to the news as if the train was in a tunnel and the light at the end was an oncoming train.
What threw the markets was the announcement that the listing of Telkom on the JSE Securities Exchange SA and the New York Stock Exchange had been delayed until March 4 as opposed to February 25, the date announced just hours earlier.
But more disturbing to both the markets and many economists are fears of a higher supply of government bonds in the coming year, as government is likely to need to borrow more in order to reduce its net open foreign currency position (NOFP) and eventually its oversold forward book.
The indicative terms of the Telkom IPO show that a maximum of R6,8-billion (roughly $800-million) could be raised through the offering, of which only about 50% will be available to foreigners. If this maximum is taken up by offshore investors, only about $400-million will flow into the country through foreign direct investment (FDI), which can be used by the South African Reserve Bank (SARB) to reduce the NOFP.
This is not enough to fully eliminate the NOFP, however, as figures released on Thursday morning show that the NOFP currently stands at $1,618-billion, while the outstanding forward book is estimated at about $6,6-billion.
In its February 2002 budget, the government had estimated privatisation proceeds of R12-billion. At the same time, the SARB had pledged to eliminate the NOFP completely by the end of the 2002 financial year.
Neither of the goals are now likely to be reached. The NOFP and forward book have been a source of concern for international investors and therefore a source of vulnerability for the rand over the past few years. In its report on South Africa released earlier this month, the International Monetary Fund (IMF) also cited the two as a continuing concern.
The government will, according to Jac Laubscher, chief economist at Sanlam Investment Management, also be left with a R5-billion or R6-billion rand shortfall in its R12-billion budget for privatisation in 2002, which it won’t be able to fill unless it can pull something out of the hat.
Economists and opposition parties have also accused the government of dragging its feet on the Telkom IPO, saying that had the IPO been launched two years ago, government could have raised much more.
Also, they believe now might not be the best time given the slump in the global telecoms market and the fact that the Independent Communications Authority of South Africa (Icasa) had rejected the two sole bids for the licence for the competing second national fixed line operator (SNO).
On the latter score, the rand wobbled in January 2000 on concerns that legislation was not in place to licence a second SNO. With both bids for the SNO now in all likelihood having to be disqualified due to what ICASA cites as ”material deficiencies”, analysts point to what they dub ”bungling” by the government.
If anything, however, monopoly Telkom stands to benefit from the imbroglio, which is likely to make its stock more attractive to potential investors.
Apparently undaunted by the criticism, Public Enterprises Minister Jeff Radebe on Thursday heralded the launch of the Telkom IPO as a ”memorable moment” for South Africa, saying it would play a major role in the continued growth of South Africa’s economy.
He said the listings would drive ”economic transformation and development inside our own country, while at the same taking one of the country’s economic giants onto the world stage”.
He added that Telkom’s listing was designed to have significant macro-economic benefits for the country and for the government’s black economic empowerment program.
Telkom CEO Sizwe Nxasana also trumpeted the event as a landmark one.
”Our strategy is to increase profitability and cash flows, and we are committed to reducing capital expenditures, repaying our debt and reinstating dividend payments,” he said.
He said the telecommunications giant was looking forward to solid revenue growth and declining capital expenditure.
During the past few years, the group had proved very proficient at managing its debt portfolio, reducing risk exposure and maximising shareholder value, he said.
In the six months to the end of September 2002, Telkom managed to reduce its debt by R1,2-billion to R24,4-billion. The group also did not consider it critical for Telkom to recapitalise at this stage, Nxasana added. – I-Net Bridge