South Africa’s ANC Considers Pushing for Telkom Delisting

South Africa’s ANC Considers Push to End Telkom’s Listing
“There are discussions about delisting inside the party,” ANC Treasurer General Mathew Phosa said in an Aug. 3 phone interview, declining to comment further other than to say that the discussions were “private.” Photographer: John Hogg/Bloomberg

South Africa’s ruling African National Congress is considering a push to end Telkom SA Ltd.’s listing on the Johannesburg stock exchange and taking the company private, a party official said.

The party wants Pretoria-based Telkom, which the government privatized in 2003, to expand services in Africa’s biggest economy. The company, which is the continent’s biggest fixed-line operator, is 39.8 percent owned by the government. Public Investment Corp., which oversees the pensions of state workers, held another 10.6 percent as of July 27, according to data compiled by Bloomberg.

“There are discussions about delisting inside the party,” ANC Treasurer General Mathews Phosa said in an Aug. 3 phone interview, declining to comment further other than to say that the discussions were “private.”

The government in June blocked a proposed sale of 20 percent of Telkom to KT Corp., South Korea’s biggest phone and Internet provider, for 2.7 billion rand ($331 million), saying that the company is a strategic asset in the government’s plan to increase broadband and telecommunications services to all of the nation’s population.

Turnaround Plan

After rejecting the bid, the Cabinet asked Communications Minister Dina Pules communications minister, to consult with Telkom and report back after three months with a turnaround plan for the company. The three months expire at the end of this month.

“The ANC is having its own internal discussions, which are separate from the government’s policy, which I’m heading,” Pule said in an Aug. 3 phone interview. Any decision from the party discussions is likely to be raised at an ANC conference in December and implemented at a later stage, she said.

Telkom’s board has not discussed delisting, Telkom Chief Executive Officer Pinky Moholi said in an e-mailed statement yesterday.

“We have met Telkom’s management three times in the past two months,” said Pule. Officials from her ministry, together with a Cabinet committee that includes Finance Minister Pravin Gordhan, Public Enterprises Minister Malusi Gigaba and two other ministers, is on schedule to report back to the cabinet by the end of the month. “We are engaging with Telkom as the government and shareholder,” said Pule.

Telkom shares fell 1.4 percent to 18.05 rand at the close in Johannesburg, giving the company a market value of 9.4 billion rand ($1.15 billion). Telkom sold shares at 28 rand each in a March 2003 initial public offering, the only IPO of a state-owned company since the end of apartheid in 1994, with the stock peaking at 90.42 rand on Sept. 3, 2007.

Failed Expansion

Increased competition in South Africa and a failed expansion into Nigeria have cut profit excluding one-time items at Telkom every year since 2006. South Africa’s Competition Tribunal will in October begin hearings into an eight-year-old complaint by Internet service providers that Telkom abused its domestic-market dominance, which could result in a 3.25 billion rand antitrust fine. Telkom has denied the allegations.

In March last year, Moholi became Telkom’s fifth CEO since its IPO. In February, the company asked Lazarus Zim, the company’s fourth chairman since listing, to stay until Aug. 31, 2013.

Cash Returns

“This talk of delisting is not an indication of privatization of state assets having failed,” Khulekani Dlamini, head of research at Cape Town-based Afena Capital, said. “Quite the contrary in fact, the government has made an astounding amount of money out of Telkom since it was listed.”

The company has paid dividends each year since 2004 with special cash payments in 2005, 2006, 2007, 2009 and 2010. “Those payments alone can easily pay for an additional 60 percent of the shares the government doesn’t already own,” Dlamini said.

In 2009, the fixed-line operator sold a 15 percent stake in Vodacom Group Ltd. for 22.5 billion rand to Newbury, England-based Vodafone Group Plc, reducing its 50 percent stake before spinning it off to its own shareholders.

“The government has really done well financially out of Telkom,” said Dlamini, who helps manage about $2.4 billion in client funds.

‘Social Returns’

The government is considering a rights issue or an increase in debt to help Telkom return to profit, Pule said on June 5.

“What the ANC committee is doing now is only just a discussion,” Pule said Aug. 3. “There is no decision yet.”

While the ANC’s talks about delisting the company indicate that the market has lost confidence in Telkom, it doesn’t spell the end of privatization of state assets, Afena Capital’s Dlamini said. “Vodacom is still listed and flourishing.”

As a result of Telkom’s listing, the government liberalized the telecommunications industry, Dlamini said. “That would never have happened in an environment where Telkom remained a state entity,” he said.

-- With assistance by Janice Kew in Johannesburg. Editor: Antony Sguazzin, Gordon Bell.