Telkom is suffering a management exodus as the government increasingly intervenes in the phone company’s business, risking a downgrade that may bring its credit rating to within one level of junk.

Nombulelo Moholi, the fifth chief executive in nine years at Africa’s largest fixed-line operator, quit on Monday.

Chairman Lazarus Zim resigned after Telkom’s annual general meeting (AGM) last month, during which Minister of Communications Dina Pule blocked the re-election of four directors. Telkom has six board members left following the resignation of three directors since the beginning of last month, less than the eight required in the firm’s bylaws.

The premium investors demand to hold Telkom debt due February 2020 over similarly-dated government bonds rose to the most in four months after Moholi gave notice on Monday.

Yields on the notes have jumped 18 basis points from a record low on September 26, compared with a 16 basis point drop in JPMorgan Chase’s EMBI TMT blended yield index. Standard & Poor’s (S&P) said on Tuesday it might downgrade Telkom because of an unclear strategy.

“It almost beggars belief that you have a large corporate that virtually has no management,” Investec Asset Management head of South African and frontier-market credit Simon Howie said on Tuesday. “We’ve got to a point in Telkom where news flow is worse than a worst-case scenario. There is certainly the potential for credit spreads going out.”

Sibusiso Sibisi, one of the non-executive directors not re- elected last month, did not “have the foggiest clue” on why the government blocked his appointment, he said on Wednesday. He is the chief executive of the CSIR and a member of the board of construction company Murray & Roberts.

S&P, which rates Telkom BBB: two notches above non-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 simultaneously expands its cellular operations.

The firm would use Telkom’s financial first-half earnings to assess its rating, S&P analyst Guillaume Trentin said.

“All of the management changes that we have seen in the past years clearly has certainly delayed and affected the implementation and execution of Telkom’s strategic priorities,” he said on Tuesday.

“We need to take a view on whether we downgrade this company to BBB- or if we still think they can preserve a BBB,” he added.

Increased competition in South Africa and a failed five- year expansion into Nigeria that cost Telkom R9.6 billion has cut profit before one-time items every year since 2006 at the parastatal, 39.8 percent owned by the government.

“It is the responsibility of the board and the management team to balance the interests of all shareholders,” Pule said in response to questions on Wednesday. “This means, among others, ensuring that the company has a stable leadership team and a reliable experienced workforce.”

It was Telkom’s duty to call a special board meeting to appoint more directors, Pule said.

The government was working with other shareholders and the company to fill vacancies, decisions on which would be announced within weeks, she added.

“Telkom will continue to access funding from capital markets when the timing is appropriate and the funding need arises,” the firm said.

Telkom’s board would look for a new chief executive once it had filled the empty board seats, it said this week.

Telkom said in June that the cabinet would not back the sale of 20 percent of Telkom to South Korea’s KT Corporation because the company was a strategic asset and must play a developmental role.

Telkom appealed to the government to reconsider the deal, which could have brought broadband expertise and a R3bn investment, former chairman Zim said at the AGM last month.

The company needed a partner to help it reorganise and compete, Public Investment Corporation (PIC) chief executive Elias Masilela said on Tuesday. The PIC owns 10.6 percent of Telkom.

“The vacuum of leadership at the top and what looks to be a lack of independence to get on with the job without the influence of their big shareholder seems to be stifling their ability to make real strategic changes,” said Craig Pheiffer, the general manager of investment at Absa Asset Management Private Clients. “There’s no clear strategy in place about how they’re going to rebuild.”

Profit before one-time items in the six months to September fell more than 65 percent after boosting provisions for an antitrust fine, Telkom said in September.

The firm was fined R449 million on August 30 for abusing its market dominance, while the Competition Commission has asked for a larger fine to be imposed on the company.

Telkom stock fell for a fourth day yesterday, retreating 0.81 percent to close at R17.06, extending losses this year to 41 percent. That compares with a 17 percent gain in the JSE all share index.

Yields on Telkom’s R2.5bn of eight-year, 6 percent bonds rose two basis points to 6.64 percent when Moholi, appointed in March last year, announced her resignation.

That widened the gap over the government’s 7.25 percent notes due January 2020 to the highest since July 19. Yields on the state’s securities rose one basis point, or 0.1 percentage point to 6.48 percent yesterday.

“What you do not want in your portfolios as a credit investor is deteriorating credit,” Howie said. – Stephen Gunnion and Renee Bonorchis from Bloomberg