Telkom, government to brainstorm growth plan after KT deal rejection

Published Jun 6, 2012

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Bloomberg

Telkom might sell stock to existing shareholders or raise debt to fund a return to profit for Africa’s largest fixed-line operator, Communications Minister Dina Pule said yesterday.

Telkom said on Friday that South Africa’s cabinet would not support a plan to sell 20 percent of Telkom to KT Corporation, South Korea’s biggest phone and internet provider.

Yung Kim, the senior executive vice-president for strategy planning and investment at KT, said yesterday that KT’s plans for the purchase had been set aside but might be revived depending on what the South African government asked for.

Pule said in an interview at a conference in Cape Town that funding details would be worked out during the next three months after the government had met with Telkom to “consider the way forward”.

The cabinet would consider other deals if foreign investors were 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 headline earnings 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, while the Public Investment Corporation, which invests state employees’ pensions, holds 10.9 percent of the JSE-listed company’s stock.

A rights offer might not be a viable option, said Khulekani Dlamini, the head of research at Cape Town-based Afena, which manages about R20 billion, excluding Telkom stock.

“This would be negative for shareholders unless they were very discounted,” he said.

“It would also mean the government as the major shareholder would have to cough up more cash to meet a rights offer.”

On the other hand, raising debt would come at a higher cost because of the European credit crisis, he added.

KT on May 8 offered to pay R25.60 a share for the stake, a reduced price from an October 14 offer of R36.06 a share. KT was not discussing raising the price, Kim said yesterday.

Telkom dropped R2 to R21.29 as of 3pm in Johannesburg, extending its decline over the past 12 months to 41 percent. At the close of trade, the shares were down 6.15 percent at R20.

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