Telkom is set to wipe 30% off its short-term interest-bearing debt on Wednesday by fully settling a R623 million maturing corporate bond, cutting that portion of its debt to R1.4 billion.
The payment retires the TL31 bond, effectively an institutional IOU listed on the JSE and funded by local investors, which has reached the end of its term.
Alongside the R623 million capital repayment, Telkom will pay R13.1 million in final interest on the TL31, plus R15.4 million in coupon interest – the regular interest payment – on a separate, longer-dated bond, the TL33.
The move comes on the back of a year in which Telkom made significant progress paying down what it owes.
Group chief executive Serame Taukobong says repayment of interest-bearing debt and an improved cash position led to a R1.1 billion reduction in net debt, when cash holdings are offset against debt, which was R6.4 billion at the end of March.
Cutting costs, growing earnings
Telkom recently reported revenue up 1.4% to R44.4 billion, driven by data revenue growth of 7.6%. Operating profit – measured as earnings before interest, taxes, depreciation and amortisation (EBITDA) – rose 5.8% to R12.48 billion, with the margin expanding to 28.1%, above the group’s own target range of 25% to 27%.
Headline earnings per share rose 21.5% to 708.5 cents, while basic earnings per share increased 5.5% to 719.5 cents, both of which contributed towards Telkom paying down what it owed.
Taukobong says Telkom maintained a “deliberate focus on disciplined cash management,” with free cash flow of R3 billion, generated through collecting more money owed to it, cost-efficiencies and higher handset receivable sales.
Telkom says its lower debt position gives it “strategic flexibility to reinvest in high-return growth opportunities, optimise capital structure over time and navigate potential market volatility”.
The cost of servicing debt fell 19% to R1.6 billion as lower debt levels and interest rates reduced borrowing costs.
I owe, I owe
Telkom’s total gross debt was R14.1 billion at the end of March. With cash balances of R7.7 billion, net debt was R6.4 billion, its annual results show. The group has hit its target ratio of net debt to EBITDA of 0.5 times for two consecutive years, within its own guidance range of 0.5 to 1.5 times.
Within the next 12 months, Telkom must manage R4.3 billion in short-term borrowings, split between R2 billion in interest-bearing debt and R2.2 billion in lease liabilities, which are long-term rental obligations recognised on the balance sheet under accounting rules.
Over the longer term, the TL33 bond – also JSE-listed, with a principal of R700 million – is not due for repayment until March 2033. The R15.4 million interest payment this week services that ongoing obligation.
The two bonds reflect very different economic conditions at the time they were issued. The TL31, issued in June 2019 when inflation averaged 4.5% and the prime lending rate was 10.25%, carries a rate of 8.34%.
The TL33, issued in March 2023 when inflation had climbed to 7.1% and prime peaked at 10.75%, carries a slightly higher rate of 8.71%. Both rates are more than double South Africa’s current inflation rate, though below the current prime rate of 10.5%.
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