Telkom SA Ltd. (TKG) fell to its lowest in almost nine years after South African Communications Minister Dina Pule said the government may sell stock to existing shareholders or raise debt to help fund a return to profit for Africa’s largest fixed-line operator.
Telkom dropped 6.2 percent to close at 20 rand in Johannesburg, its lowest since Sept. 10, 2003, and extending its decline over the past 12 months to 45 percent.
South Africa’s Cabinet won’t support a plan to sell 20 percent of Telkom to KT Corp. (030200), South Korea’s biggest phone and Internet provider, Pretoria-based Telkom said on June 1. KT’s plans for the purchase were set aside and may be revived depending on what the South African government asks for, Yung Kim, senior executive vice president for strategy planning and investment at Seongnam, South Korea-based KT, said today.
Details will be worked out during the next three months after the government has met with Telkom to “consider the way forward,” Pule said in an interview at a conference in Cape Town today. The Cabinet will consider other deals if foreign investors are interested, she said, adding that “shareholders are welcome to approach the government with alternatives.”
Telkom needs a partner to fight increasing competition that has cut profit excluding one-time items every year since 2006, while a stake purchase would give KT a growth opportunity in Africa. South Africa’s government owns 39.8 percent of Telkom, Africa’s largest fixed-line operator, while the Public Investment Corp., which invests state employees’ pensions, holds 10.9 percent of the Pretoria-based company’s stock.
A rights offer may not be a viable option, said Khulekani Dlamini, head of research at Cape Town-based Afena, which manages about 20 billion rand ($2.4 billion), excluding Telkom stock.
“This would be negative for shareholders unless they were very discounted,” he said in a phone interview. “It would also mean government as the major shareholder would have to cough up more cash to meet a rights offer,” while raising debt would come at a higher cost because of the European credit crisis, he said.
KT on May 8 offered to pay 25.60 rand a share for the holding, a reduced price from an Oct. 14 offer of 36.06 rand a share. KT isn’t discussing raising the price, Kim said in a phone interview today.
“When you negotiate a deal you want the best outcome for yourself,” said Pule. “Telkom must inform government of its funding needs so a solution can be found,” she said, adding that KT’s offer was too low to meet Telkom’s needs.