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Win-win deal as SA puts privatisation on course
Telkom is confident of keeping a rein on debt, despite a R53-billion capital expansion plan, writes SVEN LUNSCHE
TELKOM has allayed fears that its R53-billion expansion of the country's telecommunications network will collapse the company's financial resources. The state-owned telecommunications group received a $1.26-billion (R5.58-billion) cash injection this week following the sale of a 30% stake to SBC Communications of the US and Telekom Malaysia. But in the wake of the deal, the cost of Telkom's Vision 2000 programme - to rollout 2.7-million new telephone lines and upgrade a further 1.25-million - has surged from R32-billion to R53-billion. Angus Band, Telkom's general manager, finance, says while overall debt will inevitably rise from its current R8-billion level, this will be matched by the injection of capital from its new equity partner as well as improved revenue flows springing from the expanded network. Once completed, the number of telephone lines in South Africa will have doubled. "We are committed to reducing the current debt-equity ratio from 1.2 to one and maintaining this level during the rollout period," says Band. Telkom will seek loan finance for the expansion programme on local and overseas capital markets. Without the privatisation Telkom would have struggled to meet its own target of 1.8-million new telephone lines over five years. In the current financial year to end-March Telkom has established a mere 250 000 new lines at a cost of about R3-billion. The economic record books are being rewritten following Telkom's partial privatisation. The $1.26-billion deal is the largest privatisation to date in Southern Africa. It is also the biggest capital investment in the new South Africa and is accompanied by the largest capital expenditure programme yet. On balance, the deal is a favourable one for South Africa. The huge rollout requirement contained in the Telkom licence is believed to be one of the reasons that the other bidder for the stake - Deutsche Telekom - pulled out of the running at the last minute. But SBC and Telekom Malaysia committed R5.58-billion - in line with expectations - before the stiff rollout criteria were announced. Apart from the cash, the two companies are also sending 75 of their top managers to South Africa and are committing more than R100-million in bursaries, university funding and scholarships. During the five-year expansion programme more than R2.3-billion will be spent on development and training targeted mostly at black employees. An estimated 80 000 training courses a year will be held during the period. The government is a major winner in the deal. Minister for Posts and Telecommunications Jay Naidoo points out that during the five-year period the state will receive R3.2-billion in dividend payments and R8.4-billion in taxes. Of the cash payment from the strategic equity partners, the government will keep $260-million for debt redemption in the 1997/98 fiscal year. Among the economic benefits listed by Naidoo are an estimated 50 000 new jobs in the telecommunications sector. From an investment perspective the deal is even more beneficial, sending a clear signal that the government has finally embraced privatisation. "South Africa has been behind the curve on privatisation. For foreign investors this deal is a very important signal because once the process starts you know there is more to come," Constantin Vayenas, an economist at UBS in London, told Reuters. "Privatisation is absolutely critical because of the capital that will flow in and because of the message it sends about the determination to trim government spending and open up the economy," he said. Both SBC and Telekom Malaysia say they expect good returns from their investment throughout the five-year rollout period. "We are delighted at securing this investment from both a commercial and development perspective," Telekom Malaysia chief executive Dato Mohammed said from Kuala Lumpur on Friday. Telekom Malaysia has been pursuing an aggressive acquisition campaign in Africa over the past two years, playing a major role in the privatisation of operators in Malawi, Guinea and Ghana. SBC chairman Edward Whitacre described the deal as a "sound investment", given the high level of pent-up demand for basic services in South Africa. In terms of the agreement between SBC and Telekom Malaysia, the US firm is the senior partner in the consortium and will control 18% of Telkom with the remaining 12% held by the Malaysian group. The partial privatisation of Telkom could be taken further once the rollout has been completed and the company faces full competition, says Naidoo. If the government decided to sell a larger stake, it would be likely to choose an initial public offering, he said in an interview. In the short term (by mid-year) Naidoo is likely to finalise plans to offer a further 10% of Telkom to "disadvantaged communities", namely staff, trade unions and black-controlled telecommunications companies. This sale will tie up with government plans to establish a National Empowerment Fund which will receive contributions from the privatisation of all public sector corporations up for sale.
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