The privatisation of government-run Kenyan fixed-line and mobile telecommunications operator Telkom Kenya is expected to be finalised early next year.
This comes after the Kenyan government put 51% of the company's equity up for sale to a strategic equity partner, in a competitive international bidding process.
According to a statement issued by investment secretary Esther Koimett, after the sale, the strategic investor will be required to reduce its stake from 51% to 40%.
"The successful bidder will get a controlling stake, but will have to sell off 11% in an initial public offering on the Nairobi Stock Exchange."
The government will then sell a further 19% of the shares to the public, scaling down its shareholding to 30%.
Telkom Kenya is seeking a strong partner that will offer technical and financial support to help turn the incumbent around, according to Kenya's Eastern Standard.
So far, eight companies are lined up to buy the controlling stake in the telecoms operator. These include MTNL, Reliance Communications and the Tata Group (Videsh Sanchar Nigam Limited or VSNL), all from India.
Other bidders are France Telecom, Telkom SA, Alcazaar (a Kuwaiti consortium), Libyan African Investment Portfolio, and Greenet, in partnership with British Telecom.
Telkom Kenya will receive technical proposals from interested investors from 30 October and financial proposals from 8 November. This is according to a revised privatisation report, compiled by Telkom Kenya and the International Finance Corporation (transactors of the privatisation process).
Clean slate
The privatisation process comes after a spate of problems within the incumbent, according to a spokesman close to the process. The company has been running at a loss, largely due to excessive staff numbers and increased competition in the Kenyan market, explains the privatisation report.
"Pre-privatisation restructuring is dealing with the legacy issues that have long weighed on Telkom Kenya's performance," says the spokesman.
Sammy Kirui, MD of Telkom Kenya, recently stated that staff cuts have taken place in a bid to streamline financial operations. There were 17 000 employees at the beginning of 2006, which will be reduced by 3 100 by the end of the privatisation process.
The funding of this retrenchment will be met independently of the privatisation, so that a future equity partner will not be liable for any associated costs, according to the report.
David Muriithi, Telkom Kenya's CFO, recently said the company's transformation aims to make the incumbent "debt-free" before the transaction is completed, to increase its value.
Kenyan newspapers report that some of Telkom Kenya's liabilities amount to $10.2 billion (KES68.8 billion).
Inviting proposal
Telkom Kenya recently acquired a mobile operator's licence, worth $55 million, ahead of the share purchase, as part of its reform and sale strategy. The company has launched a wireless service, based on a CDMA 2000 platform, which has already attracted 150 000 subscribers.
Some $100 million is being invested in a microwave/fibre backbone, based on IP, which is being rolled out across the country and will cover all major commercial centres.
"The transformation of Telkom Kenya into an integrated telecommunications service provider, offering converged fixed and mobile multimedia products across a wireless and fibre optic backbone, makes the incumbent a valued investment," notes the spokesman.
Penetration in Kenya's cellular market is below 30%, pointing to scope for further growth, says the spokesman. Fixed-line and broadband service penetration is still low, giving further opportunity for growth, especially with the expected landing of a submarine cable by early 2009.
"This gives potential stakeholders huge scope for growth."
Coupled with the latter, Kenya's economy is on a firm recovery path. Real gross domestic product growth this year is projected at around 6.3%, which most observers expect to be sustained in the coming years, explains the spokesman.
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