Vodacom pulls DRC funding

Vodacom has come out swinging in response to threats of legal action by the minority shareholder of its Democratic Republic of Congo (DRC) operation.

The JSE-listed mobile operator, which owns 51% of Vodacom DRC, has decided to stop any further investment in the company while “relations with our minority shareholder [Congolese Wireless Networks (CWN)] are combative and dysfunctional”.

Vodacom, through its subsidiary Vodacom Mauritius, owns 51% of Vodacom DRC, with CWN holding a minority stake of 49%. The company officially made its commercial debut in 2002.

Following rumours that CWN is unhappy with the shareholding and plans to file for dissolution of the partnership in a Kinshasa court, Vodacom this morning released a harsh statement lambasting the Congolese company's actions.

Vodacom's COO of corporate affairs, Bob Collymore, says: "Vodacom remains firmly focused on developing the Vodacom Congo business to its full potential, but we cannot justify further investment while relations with our minority shareholder are combative and dysfunctional.”

The company first hinted at tensions in the DRC operation in its prelisting statement published in the middle of last year. At the time, the company said it was in discussions with CWN that could result in changes to either the corporate structure of the business, or the financial make-up.

It appears these discussions have now broken down. “Although Vodacom has continued to constructively engage with 49% shareholder CWN, these discussions have thus far proven unsuccessful.”

Vodacom says CWN is disputing terms of a funding agreement, which the company notes was approved by all shareholders, including CWN. “Vodacom finds the actions of CWN counterproductive and not in the best interests of either Vodacom Congo or the country as a whole," adds Collymore.

Vodacom says it is the sole provider of capital to Vodacom DRC, since CWN has not been part of the financial contribution. While little is known about the funding agreements, Vodacom says CWN has always been free to look for alternative funding arrangements, but has failed to do so.

Collymore seems frustrated with the actions of the Congolese business, as it is now threatening legal action to force Vodacom to invest significantly more into the business. CWN is concerned that Vodacom as a group has benefitted more from its investment than CWN.

“We have been entirely open in our dealings with CWN and have acted in good faith to ensure the viability and growth of Vodacom Congo. We are single-handedly supplying funding to Vodacom Congo at commercial terms that were agreed by CWN's directors.

“Having explicitly approved the terms of the funding, CWN cannot now claim ignorance of these terms and we refute any suggestion that Vodacom has unduly benefitted from the finance agreements. Any intended litigation on this issue is entirely without merit and a contrived attempt to force Vodacom to disproportionately fund further investment,” adds Collymore.

Vodacom says it will defend against any legal action in the DRC “while continuing to seek an amicable resolution”.

Vodacom's trouble in the DRC could not come at a less opportune time, since the global economic crisis impacted heavily on returns the company gained out of the African country.

The republic is dependent on mining revenue, which took a beating last year during the tougher parts of the economic downturn. Vodacom DRC dropped operating profit by 44% in the half year, thanks to the country's economic woes.

Vodacom will want to resolve the shareholder trouble as soon as possible, as the DRC remains a critical country to maintain a foothold in, if Vodacom wants to take on Africa's mobile powerhouse, MTN.