The Treasury has acquired a 60 percent stake in Telkom Kenya from UK-based private equity fund, Helios Investment Partners, for Sh6.09 billion, making the company fully State-owned.
Documents tabled in Parliament show the purchase was one of the strings of expenditures that the Treasury incurred without the approval of Parliament in the weeks to the inauguration of President William Ruto on September 13.
The deal marks a rare return of a privatised company to State ownership, derailing initial plans for the listing of Telkom Kenya at the Nairobi Stock Exchange (NSE) through an initial public offering (IPO).
France’s Orange bought a majority share in Telkom Kenya when it was privatised in 2007 but then sold its stake to London-based Helios Investment in 2015 for undisclosed fees.
At Sh6.09 billion, the deal values Telkom Kenya at Sh10 billion, equivalent to one percent of the Sh1 trillion valuation of Safaricom—the dominant market leader.
A top Treasury official reckons that the State exercised its pre-emptive rights after Helios notified the government of its intention to exit Telkom.
Pre-emptive rights are privileges extended to shareholders, giving them preference to buy the stake in the business should one of the owners opt to exit.
“We bought the shares for Sh6 billion after Helios threatened to quit,” said the top Treasury official who spoke on condition of anonymity.
“We bought the shares because the government was afraid Helios was going to sell to an investor that did share the same vision with us in the turnaround of Telkom Kenya.”
Telkom Kenya, which is Kenya’s third-biggest telecommunications company by users, has been losing subscribers in recent years.
The operator’s mobile phone subscribers dropped from 4.23 million users in 2019 to 3.42 million in June, representing a 19.1 percent fall, in a period when its rivals—Airtel and Safaricom have gained customers.
The Sh6.09 billion that the State wired to Helios is part of the Sh23 billion that the Treasury spent with MPs’ approval between July and August.
The Constitution requires the Treasury to table a mini-budget two months after withdrawing funds from the Consolidated Fund without the approval of MPs—whose term ended on July 9.
The Sh23 billion is part of the Sh54.6 billion it had committed to withdraw from the government’s main account without parliamentary approval. The Treasury is now seeking approval for the payment amid protests from the Parliamentary Budget Office (PBO)--a unit of Parliament that advises lawmakers on financial and budgetary matters.
“This Article of the Constitution has been abused by the Treasury. What happens now is that the Treasury withdraws money to fund what is not budgeted and comes to Parliament to rubberstamp the expenditure?” Martin Masinde, the acting director of PBO, asked recently.
Helios is the latest international operator to quit Kenya, where Safaricom, part-owned by Vodacom and Vodafone, has 67 percent of 36 million mobile users.
India’s Essar Telecom, Kuwait-owned Zain, France’s Vivendi have quit Kenya over the past 20 years after failing to return profits in a market under the control of Safaricom—the region’s most profitable firm. They have faced an uphill task competing for subscribers with Safaricom, whose market share stood at 66 percent in June. Airtel had 26 percent of Kenya’s total mobile phone subscribers in June.
Safaricom’s competitors say the company enjoys a dominant position in the market, accounting for over 90 percent of revenues in areas such as voice calls and text messages.
The dominance has triggered the push to break Safaricom into separate telecoms and financial services businesses. Safaricom maintains it does not abuse its dominance or hinder competition.
Treasury sources reckon that Helios lost interest in Telkom after its merger with Airtel Kenya collapsed.
The operator in August 2020 said it was no longer looking to merge its business with Airtel, citing challenges of securing the required regulatory approvals for the deal.
The merger would have created a stronger challenger for Safaricom.
“Helios told us they were no longer interested in the venture immediately after the Airtel deal collapsed,” said the Treasury source.