Weeks to the inauguration of Dr William Ruto as President, the government quietly acquired 60 per cent of the shares of Telkom Kenya at Sh6 billion.
You can call me a conspiracy theorist if you like but is it a coincidence that Telkom’s privatisation was conducted barely a month before the 2007 General Election? Is it also a coincidence that the controversial recapitalisation that saw the government’s stake diluted to 30 per cent was transacted barely two months to the 2013 General Election?
We sold 51 per cent of the company to France Telecom in 2007 in the hope that the taxpayer would get returns and the public would receive affordable and quality services. But France Telecom only delivered a beast that was forever demanding increased capital and shareholder loans from the taxpayer.
Indeed, the taxpayer ended up inheriting billions of shillings in shareholder loans. By the time the French were leaving, the government’s stake in the company had dwindled to a paltry 30 per cent.
Now we are told that, days before a new president was sworn in, the government quietly acquired majority shares in the company for Sh60 billion. The investor has flipped the company to the original owner and flown away with a fat Sh6 billion cheque in the pocket.
That deal closes the chapter on one of Kenya’s most grotesque privatisation fiascos. What started as a privatisation in 2007 has ended up in re-nationalisation.
We’re still waiting for the details of the latest transaction. We must demand details on all approvals, due diligence reports and independent valuations.
As I reflect on the latest transaction, I’m more convinced than ever before that we badly need to urgently create a government investment corporation—as was proposed by the presidential task force on privatisation reforms in 2014. We must accept that we don’t have the capacity within the government to transparently negotiate complex transactions such as these.
In June 2016, through an entity known as Jamhuri Holdings, Helios acquired 70 per cent of Telkom Kenya shares from France Telecom. How much did Helios pay France Telecom? The details of the transaction were not made public. But from the available documents, we know that, as part of the transaction, Helios bought and took over shareholder loans, which France Telecom had extended to Telkom Kenya at a consideration of Sh1 (one shilling).
Then, the shareholder loans amounted to $199 million (Sh24 billion). There was another important detail on that complex transaction: Helios then transferred 40 per cent of that liability to the government for a nominal consideration of Sh1. Simultaneously, Helios also transferred 10 per cent of its shares to the government for a nominal consideration of Sh1. That is how the government’s stake moved from 30 per cent to 40 per cent. Shares were being flipped for literally no value.
The big question here is this: What has the taxpayer earned from these complex transactions? Zero. First, the government is given 10 per cent of the company for Sh1. In the fine print of the deal, the taxpayer is made to assume a liability of circa $80 million (Sh9.6 billion).
The foreign investor sits pretty because he can make billions from repayments of interest on the dollar shareholder loans he has advanced to Telkom and from stripping it of valuable assets.
Available documents show that, by February 2019, the foreign investor had advanced Telkom Kenya $47.7 million (Sh5.7 billion) as additional shareholder loans.
In December 2018, Telkom Kenya sold Extelcoms House—the multi-storey building on Haile Selassie Avenue—to the Central Bank of Kenya for Sh1.15 billion. Yet this was not the largest asset-stripping deal by the telco. The previous year, the company had sold 720 tower sites in a sale-and-lease-back deal to American Tower Corporation, of the United States.
The consideration in that transaction was not revealed at once. But it emerged later that the deal was sealed at $235,000 (Sh28.4 million) per site—meaning Telkom pocketed a whopping Sh16.9 billion from the asset sales.
We mustn’t forget that Telkom, despite its financial woes, is still a strategic commercial enterprise for our country. It owns and runs the largest fixed line telephone infrastructure in the country.
It runs and operates, on behalf of the government, the national fibreoptic backbone. It’s interlinked and shares legacy assets with two other strategic commercial enterprises—Postal Corporation of Kenya (Posta) and Post Office Savings Bank (Postbank).
If I were President Ruto, I would immediately order a lifelong audit of all receipts and payments by Telkom shareholders since it was privatised. Shareholder loan transactions are not done at arm’s length.
