Just can’t get enough

While the American government is buying into banks, South Africa’s government is investing in cellphone operators.

Last week Telkom announced it was selling its 50% stake in Vodacom, with 15% going to Vodafone and the other 35% being unbundled to Telkom shareholders.

The transaction will result in Vodacom being listed on the Johannesburg Stock Exchange, which should place it among the top 20 listed companies.

This means that government and the Public Investment Corporation (PIC), Telkom’s biggest shareholders, now directly become shareholders of Vodacom with a 13,8% and 4,6% stake respectively.

The 15% of Vodacom was bought by Vodafone for R22,5-billion, which would value government’s stake at R20,7-billion and the PIC’s stake at R6,9-billion.

Surprising then, that instead of offloading its new shares in a mature non-strategic company, government has agreed to be locked into Vodacom for 12 months from the date the transaction is concluded.

With the deal set to be finalised in June next year once the necessary shareholder and regulatory approval has been sought, this effectively means that government will be a Vodacom shareholder until June 2010.

Telkom chief executive Reuben September confirmed at a press conference last week that government will be locked in for 12 months from the completion of the transaction and will have to hang on to 10% of its shareholding during this time.

Telkom chief of strategy Naas Fourie told the Mail & Guardian that it did not insist on government being locked into Vodacom and that the lock-in is strictly based on an agreement between government and Vodafone. “Telkom suggests that this question be posed to government as it is not appropriate for the company to speak on behalf of government,” said Fourie.

One constant criticism of the South African government’s handling of the telecommunications sector has been that it is too invested, that it can’t play the role of shareholder and policy director at the same time.

IDC’s telecoms analyst Richard Hurst said he is not sure how government will justify its shareholding in Vodacom.

“Surely you would want to divest from Vodacom,” said Hurst. “They will have to come up with some form of clarity on their shareholding. It seems government is a little unsure as to whether it should divest from the telecoms sector,” said Hurst.

“It should focus on its role as an enabler and not as a participant.”

It looks as though government is too terrified to let go of the reins, said industry consultant Dave Gale. “I don’t think they have a clear vision of the future. They don’t know what the ideal picture for the telecoms sector is for 10 years from now, or if they do it’s not in their interests to make it known, because everybody will be up in arms.”

Gale said that government’s mindset about investing in the telecoms sectors has clearly not changed.

“It is the baggage that has come from this ‘managed liberalisation’ approach to life,” says Gale. “They admit they have to privatise, but they’re not ready to let go of the reins.”

Another big winner from the deal will be the Elephant Consortium, led by Dimension Data chair Andile Ngcaba and Wiphold chief executive Gloria Serobe.

Telkom’s investor relations website states that the consortium owns a 7% stake in Telkom, which the M&G estimates would entitle it to a 2% stake in Vodacom, worth R3-billion. Ngcaba is reported to own 1,55% of the 7% stake personally, so he is entitled to a 0,5% stake in Vodacom worth R824-million.

However, dishing out Vodacom shares is not the only benefit of the deal to Telkom shareholders. There is the matter of the R22,5-billion that Vodafone is paying Telkom for the 15% stake in Vodacom.

Telkom’s proceeds from the deal will be R22,5-billion minus Vodacom’s attributable debt of R1,55-billion, leaving R20,95-billion.

This will be subject to capital gains tax and the remaining profit will be divided in two. Half will be paid back to Telkom shareholders as a special dividend and Telkom will use the other half to finance its future expansion plans.

“Our approach will be to utilise the retained proceeds prudently with the aim of ensuring that Telkom remains an attractive and strongly competitive company,” said September.

September emphasised that this deal would unlock significant value for Telkom shareholders as Telkom’s fixed-line business has been undervalued while it clung on to its 50% stake in Vodacom.

Telkom is looking to go it alone in the mobile space and September reiterated this approach at last week’s press conference, insisting that Telkom would be rolling out a wideband CDMA wireless network that it would use to target corporate and high-end residential clients.

September also said that Telkom would look to sign roaming agreements with other established cellphone partners in South Africa to augment its mobile network rollout.

Many analysts have expressed scepticism at Telkom’s ability to make a success of going it alone in the mobile space and have questioned how Telkom will survive without the cash cow that Vodacom has been for it over the years.

At the time of going to print, the department of communication had not responded to the M&G‘s questions.

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