South Africa’s PIC Calls for Change in Governance at Telkom

Public Investment Corp., South Africa’s biggest fund manager, called for a change in the way Telkom SA Ltd. (TKG) is run after a sharp decline in profit and share price at Africa’s biggest fixed-line operator.

Telkom earnings fell as much as 83 percent in the six months through September as it struggled to compete with mobile- phone operators, the company said on Nov. 14. The shares have declined 45 percent this year, compared with a 15 percent increase in the FTSE/JSE Africa All Share Index.

“We are very concerned about Telkom’s performance because it is destroying shareholder value,” PIC Chief Executive Officer Elias Masilela said in Cape Town today. “We would like the governance of the enterprise to be changed.”

While Telkom is seeking to expand into higher-margin broadband and mobile-phone markets the government, its biggest shareholder, has blocked plans to bring in a partner to help it grow. The Cabinet stopped the sale of a 20 percent stake to South Korea’s KT Corp. (030200) this year, saying Telkom is a strategic asset to South Africa. PIC holds 10 percent of Telkom, while the government owns 39.8 percent.

Directors including Chief Executive Officer Nombulelo Moholi and Chairman Lazarus Zim have left the company in recent weeks, although Telkom has since appointed two new board members and today named Jabulane Albert Mabuza, the deputy chairman of entertainment group Tsogo Sun Holdings Ltd. (TSH), as its new chairman.

Telkom shares gained 0.3 percent to 15.85 rand by 2:41 p.m. in Johannesburg, snapping a nine-day losing streak.

PIC, which oversees pension funds of government employees with about 1.3 trillion rand ($146 billion) of assets, is in talks with Telkom stakeholders about the company’s future, Masilela said, without giving details.

Standard & Poor’s (SPY), which rates Pretoria-based Telkom BBB, its second lowest investment grade, lowered its outlook on the company to negative from stable in December, citing a potential drain on cash to maintain the fixed-line business as it tries to expand its mobile-phone operations.

To contact the reporter on this story: Robert Brand in Cape Town at rbrand9@bloomberg.net

To contact the editor responsible for this story: Vernon Wessels at vwessels@bloomberg.net

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