[Kictanet] Fw: [DigAfrica] Telkom Kenya won't last 2 years?

[alice at apc.org]

----- Original Message ----- 
From: "Chifu" <chifu2222 at msn.com>
To: <DigAfrica at yahoogroups.com>
Sent: Wednesday, August 03, 2005 9:36 PM
Subject: [DigAfrica] Telkom Kenya won't last 2 years?


With losses upto $64.9m, firm won't last 2 years
JAINDI KISERO
The EastAfrican

Telkom Kenya is in dire straits. That is the conclusion of PKF
Consulting, which was appointed by the government in March to conduct
a due diligence into the financial affairs of the troubled giant
parastatal.

The report, obtained exclusively by The EastAfrican, says that if
Telkom were to be left in its current state, there would be adverse
financial implications for both the company and the government. The
consultants found that Telkom is in distress, with losses ranging from
Ksh3 billion ($38.9 million) to Ksh5 billion ($64.9 million) per year.

The report says that if nothing is done, the shareholders' funds will
eventually read negative, rendering the company technically insolvent.

It adds that the cash flow position will deteriorate, predicting that
in its present state, Telkom will not be able to sustain its
operations beyond two years due to operating losses, cash flow crunch
and inability to borrow any further funds.

Without quick action to address its problems, government guarantees
may be required for the company to attract funding from the financial
sector.

A financial analysis of Telkom's operations conducted by the
consultants showed that revenues have been on decline since the year
2001, mainly as a result of a rapid decline in the number of new
landline connections, a clear sign that Telkom is losing to the two
mobile phone operators.

The state-owned company's problems have been compounded by the fact
that its fixed costs have been increasing exponentially, mainly as a
result of a bloated workforce and the costs associated with large
fixed asset investments.

While the company's gearing ratios (debt to total capital) have
remained relatively low, averaging 11 per cent, the report by PKF says
that it is only so because the company's accounts have not adequately
recognised additional liabilities including stocks and debtors
provisions, additional tax and pension liabilities and investment
revaluation, and the continuing loss making patterns.

The consultants also found that key financial ratios of the company
have deteriorated, mainly because of Telkom's inability to collect
debts on a timely basis, as a consequence of which the company has
been experiencing difficulty in settling its short-term outstanding
obligations. The company is owed hundreds of millions of shillings by
some its subsidiaries.

For instance, the report notes inter-company and related debtor
accounts include an amount of Ksh964 million ($12.5 million) for the
Gilgil Telecommunications Institute (GTI).

Yet the evidence is that itself GTI is broke and relies on Telkom to
finance its operational activities.

The report also notes that there exists a corporate tax liability of
Ksh1.6 billion ($20.7 million) on the books of Telkom relating to the
defunct Kenya Posts and Telecommunications (KPTC).

The consultants say the government lent Telkom $33 million in 2000 to
facilitate the acquisition of the Safaricom licence, which will have
to be paid within two weeks of its privatisation, according to an
agreement signed with the government.

>From a review of the company's long term loans, the consultants note
that, although a "Paris Club" debt rescheduling arrangement between
the company and the government was arrived at, to reschedule Telkom's
long term loans where Telkom would only pay 40 per cent of the loans,
the agreements have yet to be signed.

Based on an actuarial valuation conducted on the scheme by Alexander
Forbes as at June 30, last year, on the pension scheme for Telkom
employees, the total actuarial deficit amounted to Ksh8.1 billion
($105 million) after excluding the outstanding contributions to net
assets.

The total pensions liability as per Telkom's balance sheet as at June
30, 2004 - excluding the impact of potential retrenchment of - staff
amounts to Ksh4.2 billion ($54 million) resulting in a shortfall of
Ksh3.8 billion ($49 million). In the report, PKF has proposed that a
provision be made to adjust Telkom's liability to the actuarial position.

The consultants also found that the Kenya Revenue Authority (KRA) had
issued tax assessments for corporation tax amounting to Ksh28.2
billion (including interest and penalties amounting to Ksh20.3
billion). However, these assessments are being contested by Telkom and
their tax advisers.

The report says that the management of Telkom believes that there is a
possibility that the government may waive the penalties.

Source: East African





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