Transtel and Eskom Enterprises, which will own the 30% state owned enterprises (SOE) stake in South Africa’s proposed second network telephone operator (SNO), say the lack of certainty and inadequacy regarding certain issues surrounding the SNO lead them to believe alternative plans should be investigated.
This, it says, will allow the SOEs to recoup the cost of their investment from the SNO, that will rival partially-privatised monopoly Telkom which was listed on both the JSE Securities Exchange SA and the New York Stock Exchange in March this year.
Commenting in a letter to the Independent Communications Authority of South Africa (Icasa) on the recently published consultants report on the two bids for the 51% strategic equity partner stake which is up for grabs in the SNO, Transtel and Eskom — collectively referred to as Transtel-Esi-tel — say they would like to see the licence awarded as quickly as possible.
“Both SOEs believe that all relevant stakeholders (Telkom included) would be best served if the SNO is established and launched during 2003 or early 2004.”
But they say they are concerned with the quality of the two bids bids, both of which were found by the consultants to be financially deficient.
They say there are a number of issues which concern the SOEs in their role as co-shareholders.
“These issues include such areas as the lack of funding, the valuation of their telecommunication assets and the ongoing sustainability of the SNO.”
These issues include:
Insufficient integration plan and the commensurate value
Lack of clarity on the shareholder’s agreement
A business plan which is not yet finalised
Lack of clarity on the licence conditions
Lack of proof of irrevocable funding by the bidders which is sufficient to satisfy SOE values in their assets.
“The lack of certainty and the inadequacy in these issues leads us to believe that alternative plans should be investigated. This would allow the SOEs to recoup the cost of their investment from the SNO,” the parties state.
They add that both SOEs understand the importance of integration of their telecommunications assets into the SNO, but say their priority is in line with the government’s objective of launching an SNO as soon as possible.
“To further assist in the process the SOEs would be willing and able to flexibly restructure their telecommunications assets for integration into the SNO,” they say.
But they add: “Taking into account the current telecommunications market and the fact that large telecommunications companies have not prepared to bring their balance sheet to bear in the SNO bidding process, any bidder would more than likely have to bid on the basis of conditional funding.
“However, irrespective of the way in which the funding is structured, the SOEs will not be in a position to accept a funding structure that does not recognise fair value for all SOE assets.’
Transtel, the telecommunications division of Transnet, and Eskom Enterprises, add that they have always understood that the SNO would make use of financial structuring to improve their return on investment in the SNO.
“This is an acceptable practice internationally. The SOEs would be concerned if the gearing was significantly skewed and would recommend that the gearing at the operational level remain in the region of 1:1.
“Any loans to the SOEs as a result of excess value provided to the SNO, should be repayable to the SOEs on commercial terms and thus should be included in the gearing,” they argue.
The two foreign bidders for the 51% stake in the SNO are Scandinavian-based Two Telecom Consortium and the CommuniTel Consortium. – I-Net Bridge