Telkom Says South Africa Mulling Sale of Up to $1 Billion Stake

JOHANNESBURG (Capital Markets in Africa) – Telkom SA SOC Ltd. said the South African government is considering various options regarding its 39 percent stake in the fixed-line operator as it seeks to raise cash to bail out the country’s unprofitable national airline.

The state’s shares in the former telecommunications monopoly are worth about 13 billion rand ($996 million). Lawmakers are in talks with government-owned companies including the Industrial Development Corp. and the Public Investment Corp. to buy as much as 28 percent of the company, people familiar with the matter said last week. It could sell the whole stake if the situation at South African Airways worsens, they said.

Telkom shares rose 3.1 percent to 63.09 rand as of 10:49 a.m. in Johannesburg, paring the decline this year to 15 percent. The government’s proposal “may have a material effect on Telkom’s share price,” the Pretoria-based company said in a statement on Wednesday.

The decision to bail out SAA was made as the carrier has 6.9 billion rand of debt due at end of September. Of that sum, Citigroup Inc. has said it won’t extend the repayment deadline for a 1.5 billion rand loan, echoing a similar move by Standard Chartered Plc last month. The debt-laden airline has failed to make a profit since 2011 and has struggled to control costs.

The sale of at least part of its stake in Telkom would be the second time in three years that the government has opted to sell shares in listed stocks to put cash into state companies. In 2015, the administration of President Jacob Zuma disposed of a 28.7 billion-rand stake in wireless carrier Vodacom Group Ltd. to raise funds for utility Eskom Holdings SOC Ltd., which was struggling financially amid a nationwide electricity shortage. The buyer in that case was the PIC, Africa’s biggest money manager with almost 1.9 trillion rand in assets.

The value of the government’s Telkom stake has risen 217 percent over the last five years as Chief Executive Officer Sipho Maseko turned around the company by cutting jobs and investing in a wireless business. In that time, the CEO has returned the operator to profit and reinstated the dividend. Telkom agreed to buy information technology provider Business Connexion Group Ltd., now rebranded as BCX, in 2014 to expand its corporate division.

Finance Minister Malusi Gigaba is due to present options to the cabinet on the way forward for SAA by the end of September. The airline needs a 10 billion-rand recapitalization as well as a strategic equity partner, he said on August 25.

Source: Bloomberg Business News