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Telkom engages potential investors for Openserve stake

Sibahle Malinga
By Sibahle Malinga, ITWeb senior news journalist.
Johannesburg, 19 Jun 2023
Serame Taukobong, group CEO of Telkom.
Serame Taukobong, group CEO of Telkom.

Telkom has confirmed it is engaging with potential investors that have indicated an interest in Openserve.

This, as it moves to sell a stake in its wholesale and networks business, in efforts to create value for shareholders and boost profit.

In August last year, the telephony group announced it had approved the legal and structural separation of Openserve, effective 1 September.

At the time, Telkom group CEO Serame Taukobong said the company had been on a journey to transform and unlock value in the group by separating its operating businesses to become standalone entities.

This process started with ICT services unit BCX and subsequently towers business Gyro, which now operate as separate legal entities wholly-owned by Telkom.

Openserve follows suit as a wholly-owned subsidiary of the Telkom Group, which will promote and drive autonomous ability and market visibility, he noted.

Interest in Telkom’s assets gathered momentum over the last few years, as the struggling telco looked to sell off part of its assetsamid a difficult operating environment, evolving technological advancements and accelerated power outages.

The telephony group is increasingly becoming attractive to suitors because of its extensive infrastructure, which is considered key in the ongoing fibre market battle.

In its recent annual financial results, Telkom revealed it planned an asset write-down of R13 billion, through the planned impairment of its businesses Openserve, Telkom Consumer, Gyro and BCX.

In an e-mail interview, Taukobong told ITWeb the company has started a process of engaging with potential Openserve partners.

“Openserve continues to drive growth and market diversification, evolving its revenue mix towards next-generation products.

“We have already launched a market sounding exercise, attracting numerous credible expressions of interest from a range of local and international partners.”

Openserve operates around 170 000km of fibre and legacy landline copper cables, reaching over a million homes in SA.

According to Telkom’s latest results, Openserve continued on its growth trajectory, with revenue growing by 10.2%, driven by increased rollout of fibre and healthy growth in carrier and enterprise services.

Government is the majority (40.5%) shareholder of Telkom, while the Public Investment Corporation owns 14.8% of the group.

During last week’s annual results webcastpresentation to investors, Taukobong provided an update on Openserve, noting: “As I said before, Telkom does not see ourselves disposing or diluting ourselves to a minority share; it [Openserve] is a critical infrastructure for us and those are the type of conversations that we are driving. Releasing cash is key for us to ensure the cash flow situation we find ourselves in is turned around quite significantly.”

Taukobong explained that significant market changes and challenging economic conditions, among other difficulties, have had an adverse effect on the group’s performance.

This resulted in group revenue increasing marginally by 0.9% to R43 138 million, driven by a decrease in fixed and IT service revenue.Group EBITDA decreased by 19.8%, excluding R1 065 million provisions for restructuring costs.

He said the group’s short-term priority istaking Telkom to a sustainable profitability level – meaning getting the telco back to group EBITDA of 25% − a process that will take anywhere between 18 and 24 months.

Interest in Telkom has widened amid fierce competition to buy a controlling stake in SA’s third-biggest mobile operator. The telephony group last week confirmed receiving an unsolicited offer to acquire a controlling stake in the company, from a consortium led by its former group CEO Sipho Maseko.

Providing an update on the offer, Taukobong said: “The Telkom board and management assesses all credible offers in line with their fiduciary responsibility. The current offer from the consortium that includes Afrifund Investment was rejected.”