Tag: Telkom

What can SA sell?

A Cabinet committee has changed its tune regarding a plan to sell its full R13-billion stake in Telkom to fund the recapitalisation of South African Airways (SAA) and the SA Post Office, it was revealed at the mini budget last Wednesday.

By selling state-owned assets, Treasury aims to avoid breaching its expenditure ceiling by R3.9bn. This comes after its decision to bail out SAA with a R10bn appropriation and R3.7bn recapitalisation of the Post Office.

The change in tune follows Cabinet’s realisation that the opportunity cost of losing its 39.75% stake in Telkom would be too great.

Now, Cabinet is looking at selling departmental assets and expects a cash windfall from its release of 2.6MHz broadband frequency.

Treasury director general Dondo Mogajane told media on Wednesday that they can’t simply ditch all their Telkom assets. “Telkom is a well-performing share, contributing R900m to R1bn in dividends every year,” he said. “It is important that we hold on to that as much as we can.”

Later, Finance Minister Malusi Gigaba revealed in his mini budget speech that government has “decided to dispose of a portion of government’s Telkom shares, with an option to buy them back at a later stage”.

Hang on to Telkom

In an interview with Fin24 following the speech, Mogajane said government owns many assets which are not being used, which can be sold to limit the amount of Telkom shares they sell.

“We are currently looking throughout the whole of government,” he said. “We are engaging with Public Works, we are engaging with the Department of Rural Development in terms of assets that we have.

“Once we have identified all of those, we will make recommendations to the (Cabinet) committee, which will make these hard decisions to sell based on the quantum of what’s needed.”

This Cabinet committee comprises Gigaba, Economic Development Minister Ebrahim Patel, Public Enterprises Minister Lynne Brown, Telecommunications Minister Siyabonga Cwele and Science and Technology Minister Naledi Pandor.

“Our ceiling, as the books indicate, will be breached by R3.9bn, so we will be looking for assets that will clear that by March 31, so that we remain within the ceiling, even for the current year,” said Mogajane.

“For the MTF (medium-term fiscus), we have confirmed that we will not breach the ceiling and that is the commitment we have made.”

Regarding the release of broadband frequency, Treasury said in its mini budget that “the bulk of additional spectrum is ready to be allocated immediately, without requiring the migration of existing spectrum users to digital television”.

“The delay in allocating telecommunications spectrum constrains growth across the economy. Lack of radio frequency limits the ability of businesses to deploy new technologies and contributes to the high cost of broadband,” it said.

“A well-designed spectrum auction can promote transformation and improve competition as new participants enter the market.

“Universal service conditions can improve access for low-income households. And a competitive auction can sharply reduce data costs.”

By Matthew le Cordeur for Fin24

Government may sell stake in Telkom to fund SAA

The revelation on Wednesday that finance minister Malusi Gigaba is considering selling a big chunk or possibly even all of government’s 39.3% in Telkom, at face value, is fantastic news.

There is absolutely no reason for government to continue to hold onto a significant stake in the telecommunications operator — if there ever was one, which is debatable.

On paper, now is the right time to sell the company. Under the leadership of CEO Sipho Maseko and chairman Jabu Mabuza, the company’s fortunes look better now than they have in many years.

President Zuma’s disastrous eight years in office mean the chickens are coming home to roost
The problem with selling distressed assets is they go for a song, raising almost nothing for the fiscus. Telkom is no longer a distressed asset — in fact, it is in such a strong position that it is taking the fight to its big mobile rivals, winning market share and giving them a serious headache. Consumers are loving it. Maseko’s praises should be sung from the hilltops.

It’s the wrong time to privatise state-owned assets when they are in trouble. It’s far better to turn them around, and then hive them off, ensuring the private investors that are brought in contribute meaningfully to the fiscus, in the process hopefully avoiding tax increases or even allowing for tax relief. South Africa desperately needs a well-managed programme of privatisation.

Black hole

The possible sale of Telkom — revealed in a secret cabinet document leaked to the Democratic Alliance — is being considered to raise money to throw into the black hole that is the national airline, South African Airways.

(That the DA was given this document is testimony to the fact that the ANC is a house divided. Secret documents are being leaked to the opposition, providing insight into the shambolic state of the ruling party. But that’s another story.)

So, Gigaba has a R10bn-plus hole to plug at the floundering SAA, which has been mismanaged for years under the watch of chairwoman Dudu Myeni, a close friend of President Jacob Zuma.

The concern is government is selling a good asset — using good money — to prop up an airline that should have been privatised years ago (and, of course, that shouldn’t have been allowed to be driven into the ground in the first place by incompetent managers).

But there’s a bigger issue here. Gigaba, facing a crisis over SAA, appears to be caught like a deer in the headlights, unsure about what to do. This is symptomatic of a finance minister out of his depth and, worse, a government that is failing.

Government already chased away Korea’s KT Corp, sending a terrible message to foreign investors that the country is not open for business.

If Gigaba simply starts selling government’s Telkom shares on the open market, it could prove disastrous for the telecoms operator’s shareholders. Not properly managed, the company’s share price could be decimated as the state dumps its holding.

Far better would be to sell the stake to someone through a managed process, led by advisers. But sell it to who?

Government already chased away Korea’s KT Corp, sending a terrible message to foreign investors that the country is not open for business. If there are potential foreign buyers, now is the time to ask them to step forward. But is this government prepared to sell the stake to a foreign company? Remember, it was the ANC government that almost scuppered Vodafone’s acquisition of Telkom’s stake in Vodacom, sending the rand tumbling at the time. Sanity, thankfully, eventually prevailed.

Local buyer?

Who locally could buy the stake? That’s far from clear. It’s unlikely the Competition Commission would permit one of Telkom’s big rivals to buy it. It’s not in consumers’ interests for that to happen as it would concentrate the market into the hands of three players.

But Gigaba, desperate for money to prop up an airline that has been ruined by his government, faces having his hand forced. The last thing he wants to — or should — do is to expand the budget deficit even further than it’s already stretched to bail out a bankrupt airline. He needs money from somewhere. Are there other options? Maybe. Government’s already sold a chunk of its stake in Vodacom to fund another state-owned disaster, Eskom. The Public Investment Corp, which invests public servants’ pension money, bought that stake. Maybe it will be asked to get involved again.

Whatever he decides to do, Gigaba can’t be rash about it. President Zuma’s disastrous eight years in office mean the chickens are coming home to roost. And the finance minister is in the unenviable position of having to try and fix some of the mess. The wrong decisions now could make things even worse.

By Duncan McLeod for TechCentral 

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