Telkom loses R1bn in value after Ramaphosa sets the SIU on the fixed-line operator

Telkom’s botched expansion into Nigeria and Mauritius almost 16 years ago has come back to bite the fixed-line operator. It is now caught up in a damaging dust-up with President Cyril Ramaphosa and SA’s elite law enforcement body. 

In a surprise move, Ramaphosa asked the Special Investigating Unit (SIU) to launch an investigation into Telkom’s affairs for possible corruption and malfeasance relating to, among other things, its dealings in Nigeria and Mauritius going as far back as 1 June 2006.  

The investigation would be wide-ranging, according to a Government Gazette notice that was authorised by Ramaphosa on 14 January and published on 25 January. 

The SIU is an independent law enforcement body that investigates corruption and other forms of wrongdoing relating to state institutions, public funds and state assets. The SIU is also tasked with recovering monies lost or issued under questionable circumstances. 

Its investigation into Telkom would probe “serious maladministration” regarding the company’s affairs, “improper or unlawful conduct” by its employees or officials, “unlawful appropriation or expenditure” of public funds, “unlawful, irregular or unapproved” transactions and “intentional or negligent” loss of public money. 

On Wednesday, Telkom responded to Ramaphosa’s move, saying it was awaiting further clarity on the scope of the SIU’s investigations into the company’s affairs and alleged wrongdoing. 

In a statement, Telkom said it “will deal with the investigation on its merits in the appropriate forum, in the appropriate manner, at the appropriate time”.  

Telkom also offered a brief defence against any allegations that might arise from the SIU investigation.  

“Telkom follows robust corporate governance principles and has done so in executing the Telkom strategy to consolidate its operations in South Africa.”

Since the SIU’s investigation was made known on 25 January, Telkom’s share price fell by 3.7%, wiping out nearly R1-billion from its value on the JSE.

Ramaphosa is invested in the affairs of Telkom because it is partially state-owned, with his government having a 40.5% shareholding in the company. As a shareholder, the government and, in turn, the fiscus, receives regular dividends declared by Telkom. It’s a rare benefit to the government, considering that most basket case state-owned entities don’t enhance the fiscus but rather deplete it through taxpayer-funded bailouts.

The timing of the SIU probe is curious for several reasons. It is not clear what prompted Ramaphosa to order the SIU investigation so many years after Telkom’s ill-fated expansion into east and west Africa, which cost the company and shareholders billions of rands in losses. 

Telkom’s Africa expansion 

From the late 1990s into the early 2000s, Telkom wasn’t the profitable company that it is today. During this period, Telkom was a lossmaking entity and failed to live up to its original mandate of leading South Africans into the fledgling digital age. It was a time when many consumers were ditching their fixed-line connections for cellphones. 

Telkom was also in the process of changing its share ownership structure to embrace strategic equity partners from the private sector. These partners would own a portion of the company’s shares and, in the process, offer their skills to modernise Telkom. 

In 1997, SBC Communications and Telekom Malaysia bought 30% of Telkom, a transaction worth about R5.5-billion at the time. SA’s government further reduced its stake in Telkom when the company was listed on the JSE in 2003.

In 2007 – four years after listing – Telkom, led by CEO Papi Molotsane, launched a strategy to expand the company’s operations in the rest of Africa to find new revenue streams and stem the tide of financial losses. Telkom had no track record or experience outside its South African home market. 

Molotsane and the Telkom board first identified Nigeria and then Mauritius for expansion. In March 2007, Telkom acquired a 75% stake in Nigeria’s Multi-Links Telecommunications for $280-million (about R9.8-billion at the time). By January 2009, Telkom took full control of the company by buying the remaining 25% of the company for $130-million.

The investment turned into a financial disaster as Telkom was accused of overpaying for a dud.

A KPMG valuation found that Telkom’s purchase of the remaining 25% stake in Multi-Links was worth $44-million – and not the $130-million the company shelled out. 

Operationally, Multi-Links was also facing problems within Nigeria’s fiercely competitive telecommunications industry. Between 2009 and 2010, the company pencilled in a financial loss of about R1.5-billion. 

Telkom wrote off about R5-billion in the value of Multi-Links, confirming that it overpaid for its Nigerian adventure. Telkom exited Nigeria in 2010 by selling its entire Multi-Links shareholding to Helios Towers Nigeria for $10-million – a far lower value than the $410-million it forked out to participate in the west African country. 

Shortly after making a foray into Nigeria in 2007, Telkom targeted Mauritius by buying internet businesses iWayAfrica and Africa Online Mauritius. The business suffered the same fate as Multi-Links and performed poorly, resulting in Telkom exiting the investment in 2013. 

Now, Ramaphosa and his government are baying for Telkom to pay for their past sins. The SIU investigation will probe, among other things, “maladministration in the affairs of Telkom” regarding the sale or disposal of Multi-Links, iWayAfrica and Africa Online Mauritius. 

Possible punishment for spectrum fight 

Telkom has relentlessly dragged SA’s telecommunications regulator and the government to court to block efforts to auction and release radio frequency spectrum. 

Since early 2021, Telkom has been at the forefront of picking apart the government’s spectrum auction process, calling it unfair and unlawful. 

Read more here

The release of new spectrum, which hasn’t happened since 2004, is part of Ramaphosa’s structural reform measures to grow the economy, create jobs and unlock private sector investments. But, with Telkom standing in his way, Ramaphosa has been unable to release spectrum for nearly two years. 

Some market watchers have suggested that the SIU probe into Telkom’s affairs might be retaliatory, punishing the company for collapsing Ramaphosa’s spectrum release ambitions. 

Telkom recently dropped part of its spectrum court case. It’s possible that the decision to authorise the SIU investigation took place prior to this move. 

In any event, while Telkom is not standing in the way of the spectrum auction on 8 March, it has indicated it remains opposed to the process as a whole. DM/BM