[kictanet] BT EMERGES FRONTRUNNER IN RACE TO BUY TELKOM KENYA, ACCORDING TO GOVT, OFFICIAL

[alice]

BT EMERGES FRONTRUNNER IN RACE TO BUY TELKOM KENYA, ACCORDING TO GOVT
OFFICIAL

A consortium that includes British Telecoms and Libyan investors has
emerged as the only strong contender to acquire a strategic 40 per
cent shareholding in Telkom Kenya. People close to the matter told
the Business Daily that senior officials from BT and Libyan investors
on Friday met top Treasury and Ministry of Communication officials to
work out the deal's finer details. Treasury estimates the stake to be
worth Sh5.6 billion —meaning that Telkom Kenya is now valued at Sh14
billion.

The British firm is said to have tabled a number of proposals,
including a strong financial bid as commitment to finance the
turnaround of Telkom Kenya, in the meeting that ended at 11.30 pm.
Such a high level leak means that the Government is doing its best to
talk up the price that will be paid for Telkom Kenya.

"The consortium led by BT is the team to beat. They have a credible
technical group and have the finances," an official, who attended the
meeting, said. It is the second time that the Government is trying to
sell a significant portion of its stake in Telkom Kenya, the first
attempt having flopped after bidders placed financial bids that they
ultimately could not back up with real money.

The Government had this time around included a condition that
required bidders to have an annual revenue of $200 million (Sh14
billion), more than 500,000 voice subscribers and demonstrated
experience in the deployment of broadband to avoid similar flops.

In recent months, Libyan firms, loaded with petrodollars, have been
clinching lucrative deals in Kenya mainly on the infrastructure front
including the upgrade of Kenya Petroleum Refineries. This has
cemented close trade ties between Kenya and Libya that was recently
pushed by President Kibaki's official visit to Tripoli.

The Government intends to sell its 40 per cent stake to a strategic
investor who is expected to come on board before the end of the year.
Analysts say that BT has been desperate to get a foothold in the
lucrative Eastern African market through an acquisition, a pointer
that the Telkom deal would turn their dream true.

Already, BT is well represented in the rest of the continent with its
regional headquarters in South Africa to the Southern part of the
continent. For the North African market, it has the Libyan office and
the Nigerian office to serve the West African market.

"Safaricom has shown there is money to be made in this part of the
world and everyone is now looking at getting a share of the market,"
James Rege, chairman, Capital Real Time, a telecommunication
consulting firm.

Safaricom broke its earlier record to emerge as the most profitable
firm in the East Africa posting Sh17.7 billion in profits, an
increase of 39 per cent recorded a year earlier.

With Telkom already in the wireless voice market through their new
service offering dubbed Telkom Wireless, which is set to be
officially launched this Thursday, this could be big opportunity for
BT to take a stab at a growing market.

Rege, a former permanent secretary in the information ministry, said
BT looked the most credible firm to clinch the deal should it come
through. This is not the first time the British telecommunications
giant has made a bid at Telkom Kenya. Six years ago it indicated its
interest in acquiring the state firm but it was disqualified during
the preliminaries.

Other firms that are in the race to buy the stake include Indian
mobile service providers Bharti Airtel, Reliance Communication, Tata
Holdings and Vtel communication, who had won the licence to become
the country's Second National Operator but were disqualified after
failing to raise the required license fee.

American telecommunication giant AT&T pulled out of the race after
the Government failed to buy into its demand where it indicated it
would only buy a stake in the state firm if they were given a 51 per
cent stake. This, they noted, was the only way they could get a free
hand to turnaround the loss-making company.

South Africa-based Econet is also making a second attempt to enter
the Kenyan telecommunications industry having won a licence for the
third mobile phone operator that is subject of litigation. The recent
attempt has seen potential bidders demand that the Government
increases the 26 per cent stake it had initially planned to sell for
them to consider the offer. But this has since changed as the stake
to be bought by the strategic partners has been increased to 40 per
cent and the government holding will stand at 49 per cent.

The remaining 11 per cent will be reserved to be sold to the public
through the Nairobi Stock Exchange. Telkom is currently deemed to be
unable to pass the Capital Market Authority (CMA) listing test. CMA
regulations require that any firm keen on listing at the NSE must
have posted profits for at least three in the five years to the
listing.

But Telkom Kenya has been making losses for years, weighed down by
huge staffing levels and growing competition from the wireless voice
market.
Figures sent to the potential investors show that Telkom financial
performance has been declining over the last four years.

Its turnover has been declining at an annual rate of 10.5 per cent
over the last three years as competitors eat into its market share to
settle at Sh16.3 billion in 2006 from Sh20.9 billion in 2003.

The firm notes that it expects to make a loss of Sh1.18 billion,
which is a reduction from last year's figure of Sh2.7 billion.
While the special shares reserved for the public will be held in
trust by the Government, dividend payouts from Telkom Kenya will
stream straight into the State coffers.

According to Dr Bitange Ndemo, permanent secretary Ministry of
Information, the revision had been informed by the need to go around
the State Corporation Act in a move that was aimed at making the deal
more suitable to strategic investors.

Had the strategic investor held a minority holding at 26 per cent and
the Government holding a 64 per cent stake, Telkom Kenya would not
run as a private company, but under the Act which guides the
operation of parastatals.

At the moment the government is racing to clean Telkom debt ridden
balance sheet as it prepares to bring the strategic partner on board
as well as strike a better deal in the sale of the 40 per cent stake.
The Government has already committed Sh26 billion to fix the pension
and tax arrears with pensions taking Sh10 billion and the remaining
Sh16 billion being taken by Kenya Revenue Authority. To keep the
state firm afloat, the firm is set to complete a massive staff layoff
that will reduce its work force to 3, 200 members down from 17, 000
by the end of August.

According to Permanent Secretary Bitange Ndemo, BT have also
expressed interest in investing in the TEAMS fibre project.
(SOURCE: Telegeography)