Telkom Loaned CFO $592,000 Amid Probe Into Misconduct

Telkom SA SOC Ltd. (TKG), Africa’s largest fixed-line operator, gave its Chief Financial Officer Jacques Schindehutte a 6 million-rand ($592,000) loan to buy shares in the company while he was being probed for misconduct.

“The loan was given to him at the end of September,” Chief Executive Officer Sipho Maseko said in a phone interview today. “If we had denied Jacques the loan on 30th Sept. based on an investigation that was not concluded we would have unfairly prejudiced him.”

Schindehutte was suspended on Oct. 24 following allegations of “gross misconduct,” Maseko said, declining to give further detail. The probe into the executive, who is still a Telkom employee, began in August, according to spokesman Pynee Chetty.

Telkom, which is 40 percent owned by South Africa’s government, may have breached compliance regulations after it gave Schindehutte the interest-free loan, the phone operator said in a statement.

South Africa’s Companies Act may have been contravened because the loan could be considered as a positive signal to the market, according to BPI Capital Africa analyst, Kate Turner-Smith.

“If the company provided the capital with which the director purchased the shares, especially with zero interest, it could be construed that the positive signal was orchestrated by the company.” Turner-Smith said by e-mail today.

“Challenging Environment”

Telkom said first-half profit excluding one-time gains rose 41 percent to 773 million rand after the South African currency weakened and payments to wireless operators fell. The shares gained as much as 1.4 percent and were little changed at 26.69 rand as of 11:50 a.m. in Johannesburg, giving the company a market value of 14 billion rand.

Profit including one-time items such as a gain from medical aid liability was 2.95 billion rand in the six months through September, the company said. Revenue was little changed at 16.2 billion rand. Payments to other phone companies fell 18 percent after the cost of ending calls on other networks, known as mobile termination rates, decreased, the company said.

“The group’s financial performance indicates a challenging industry environment,” Maseko said in the statement. “Despite a considerable increase in the group’s earnings, owing to several once-off items, underlying operational earnings remain under pressure.”

Telkom is the best performing telecommunications company on the Johannesburg Stock Exchange in 2013, gaining 60 percent compared with 12 percent for MTN Group Ltd. (MTN) and 3.6 percent for Vodacom Group Ltd. (VOD) The rand is the worst 2013 performer of 16 major currencies tracked by Bloomberg, falling 17 percent against the dollar.

Telkom sees “stable to slightly improving revenues,” Maseko said in the interview. The company would try to lower its cost base but it would be “very very tough” for the next three years, he said.

To contact the reporter on this story: Christopher Spillane in Johannesburg at cspillane3@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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