Fin24

SA seems ‘closed for business’

2012-06-03 16:11

Johannesburg – A national embarrassment is what experts call the failed deal between Telkom [JSE:TKG] and the South Korean KT Corporation.

On Friday government announced that it did not support the massive deal between the two telecommunications companies – after more than nine months of negotiations.

André Wills, managing director of Africa Analysis, said one had to ask why the deal was turned down at such a late stage. Government had surely been part of the negotiations, and cabinet approval should have been a mere formality.

KT, South Korea’s largest provider of telecommunications services, wanted to acquire 20% of Telkom’s shares for R3.3bn. It had initially offered R4.7bn, but last month reduced its offer following the decline in Telkom’s share price over the past year.

The deal had the support of several experts, especially as Telkom needs the injection of cash and expertise.

Arthur Goldstuck, managing director of World Wide Worx, said the decision is not in the interests of either Telkom shareholders or consumers.

“It hangs a label around South Africa’s neck saying that we are closed to business. It points to protectionism and an attempt to keep a stranglehold on the country’s communications network.”

At Friday morning’s media conference Collins Chabane, Minister in the Presidency responsible for monitoring performance and evaluation, confirmed that cabinet had turned down the transaction.

Government owns 39.8% of Telkom, and more than 50% if the Public Investment Corporation’s stake is included.

Government spokesperson Jimmy Manyi stated that the decision had been taken because government, via the department of communications, wants to give all South Africans broadband by 2020.

Telkom is a strategic asset in this effort. Government acknowledges that Telkom needs to put in place an urgent turnaround plan, he said.

Communications Minister Dina Pule has to report to cabinet within three months regarding Telkom’s options.

The news sent Telkom’s share price down to its lowest level in eight years. It closed at R21 on Friday, a decline of 8.34%, and it has lost 44% of its value since the high of R37.50 in July last year.

“I think what we are seeing here is a struggle between developed and developing markets,” said Wills.

“Interested parties have different priorities. What’s good for Telkom may not be what government thinks is good for the company.”

According to Goldstuck, government's decision means a protracted decline for Telkom. “We’ll have a long wait before the telecommunications industry is free.”

For the man in the street this means that the price of broadband services will not fall dramatically, and that the company will not invest in new technology.

Marian Shinn, DA spokesperson on communications, described government’s decision as short-sighted.

“If we turn our back on KT Corp and the company looks for friendlier investment partners elsewhere on the continent, South Africa will rank even lower on the list of technologically advanced countries in Africa.”

Marius Croucamp, Solidarity’s spokesperson, declared the decision a “fiasco”. In his view it could lead to Telkom having to cut costs owing to a lack of capital, leading to the retrenchment of thousands of workers.

The poor impression of South Africa created by this decision will be extremely difficult to mend, he said.

Over the weekend the JSE said that it would review the recent trades in Telkom shares.

Thursday saw significant trade in the company’s shares – even before government’s announcement. This resulted in the Telkom share price shedding 4.9%.

Experts attributed the trade to the fact that Telkom was to be removed from the MSCI South Africa Index the next day, owing to the decline in its market value.

The stock exchange told Bloomberg that it would refer the matter to the Financial Services Board should further investigation be required.

 - Sake24

For more business news in Afrikaans, go to Sake24.com.

 

Comments
  • Foodfor - 2012-06-03 16:48

    I think they cancelled because they wanted more in their personal pockets and could not get it...

  • Tamaranui - 2012-06-03 17:07

    No, We are not closed for business, We just do not want our Business profits leaving this Border to shareholders in South Korea every year,when the chips are cashed. This leaves less funds in this Economy.

      lerato.kay.3 - 2012-06-03 17:22

      You can say that again, what's the point of enriching these guys really, Telkom has so much potential all they need is a good business model not foreign investment. Its time SA move from the notion that every problem is solved by forein investment

      Tamaranui - 2012-06-03 17:46

      We can fastrack by ensuring at least 50% of all Mineral resources funds are to remain in this Economy then we will have enough money to buy the skills (Look at Dubai) to accelerate our transformation to a World power. We are the 28th Largest economy in the world in 2011. Much better than 1994's position.

      Nigel - 2012-06-03 18:08

      78th on the list of income per head which is a much more meaningful measure. 20 places behind Botswana (58). So, Batswana are richer per head than you. SA needs to change its attitude to FDI otherwise you are going nowhere. Fact. Wake up.

      Tamaranui - 2012-06-03 18:35

      Nigel, ""Wake up""

      Tony - 2012-06-03 19:06

      Telkom is a disaster because politicians try to make business decisions. It should be broken up and sold to private investors. Then we will see telecommunications advance leaps and bounds. If you can give me a better reason why Telkom is a failure, please surprise me.

      Vaughan - 2012-06-03 19:22

      Yes Tamaranui?!?, that's why the same people who have blocked this deal are pushing for eTolling which will result in 40billion rand leave our shores with no benefit to South Africa.

      Chris - 2012-06-04 07:04

      I see some impressively stupid people on commenting on this article. So stupid in fact that I don't actually know what to do with myself. How do you expect South Africa to invest overseas? 20% buy in is not nearly a "controlling stack" in the business. R4.7 Billion rand could give how many extra jobs? Now again, I suppose you's are happy that R4 billion rand on "e-tolls" goes overseas? Idiots, proper idiots.

      Harold - 2012-06-04 08:18

      I agree many economist are suggesting that the country need to start looking inwards in developing our economy. Foriegn investors have not shown that they have a social conscience when it comes to South Africa. They sell off assests reduce the work force claiming that they need to make the organisation more streamlined. We need asset growth and employment retention more beneficiation with in the country. if these people see such a great future for South Africa let them start new investments not plunder cash strapped organisations. Money leaving the country never returns and is invested elsewhere.

  • John - 2012-06-03 17:14

    Having a Golden Share helps nothing to instill confidence.

  • lerato.kay.3 - 2012-06-03 17:15

    If South Korea’s KT had acquired 20% of Telkom then SA could have kissed the dream of giving all South Africans broadband by 2020. Like any other investor KT is not here to improve people's lives socially but to make profit. Telkom shares have slumped over the past months mostly due to loss making telkom direct shops. This deal stinks its good that the government turned it down.

      Tamaranui - 2012-06-03 17:24

      once we sell our sould to teh Capilist overseas , we are done. In NZ all Public Assets were sold now NZ is harvested every year by the World...an example Air New Zealand is owned by the Canadian Teacher's Pension fund. Too much money leaves NZ to overseas shareholders subsequently spent in their economies.

      Tax - 2012-06-03 18:39

      Poor misinformed fools. If businesses don't make profits, nobody's lives improve. Economics for dummies.

      Tamaranui - 2012-06-03 18:52

      When you comprehend my comment, I understand profits Taxi, I am speaking about where the profits are spent.

      pushka.vladovic - 2012-06-03 18:55

      It's amazing that the fools here like lerato and Tamaranui are quick to cheer China as Africas saviour and trash the "capitalists" the truth is, our government (thieves)are also not improving anyones life and they will only do deals if there is something in it for them. The reason why our thieves don't want to do a deal with the Koreans is because either they do not want to be scrutinised by them and have all the dirt uncovered or, there is not enough in it for them . Tamaranui, did you really study at Stanford? you can't even spell properly let alone reason. I would rather some of our money goes to overseas economies than all of it gets stolen by our thieves.

      Tamaranui - 2012-06-03 19:43

      We have towed this line for over a Hundred years and we find ourselves inching ahead. BRICS and their new currency will readdress how the World markets operate. If our rand was equal to the US dollar we would be the 5th Largest Economy in the World. Why do we as South African's have to work every eight hours to equal One hour in the US. The Way the World operates now is Blatantly biased against emerging markets yet here lay the real Power via Resources which the West can not survive without.

      lerato.kay.3 - 2012-06-04 06:52

      @pushka.vladovic its easy to call people names if your argument is based on emotions and not factual. Unlike you I won't stick to name calling or fool calling. Telkom won't benefit in this dead because their shares are under valued, take time to look at their market share price and then look at their Net Assets Value (NAV) this ratio can clearly tells you Telkom's untapped potential. Why sell at a lower value? For your info Telkom has undergone a business analysis study about 6 months ago that have shown areas that are dragging the business, with the Telkom Direct Shops being the highlight and their inflexibility eg when applying for a prepaid line they want a dozen of documents. So please don't mortgage the country to foreigners unnecessarily. I don't see where does China fit in, I'm against uncalled for foreign investors who buy our shares next to nothing including China. If I may ask if China were the investor was it still a good deal?

  • luca.delbianco.3 - 2012-06-03 17:28

    I am afraid to say that overall SA nowadays seems to close down to foreign investors unless there are political connections involved.

      Vaughan - 2012-06-03 19:19

      Exactly, if the ANC's investment wing (which now makes the ANC one of the world's richest political movements) were given shares in KT Corp this deal would have easily gone through. Probably also why they gave WalMart such uphill.

      luca.delbianco.3 - 2012-06-03 21:39

      Talking about foreign investments...what will happen to the Walmart deal? Any thought on it?

  • Hans - 2012-06-03 17:29

    Did the deal fail because the package didnt included the usual bribe in our b-b-beeutifull deals?

  • Warren - 2012-06-03 17:34

    Deal off as no one got or paid the prescribed kick back,the real truth is we are closed for business,we can't guarantee incoming investing companies power to conduct their business #manufacturing down the drain

  • Andre - 2012-06-03 17:40

    It is rather difficult to do business the south african way when you have a major foreign sharaholder looking over you shoulders.

  • richard.booysen - 2012-06-03 17:43

    Telkom could have potential IF THEY MOVED AWAY FROM COPPER CABLES, The deal was cancelled because with a foreign investment into the company, fat cats cannot give themselves bonus's even when losses are declared, Block out foreign investment and keep the money to yourselves, Oh well, copper cables seem to be the way we will stay,,,,,,,,,,, , My thoughts, invest in a company that is not held down by personal gain

  • charmaine.mcdonald2 - 2012-06-03 17:57

    You win some and you lose some. Good for S.A.

  • fanie.smit.5 - 2012-06-03 18:19

    The mystery has been solved as to why the government has refused. They could not find a way to hide the pay offs what Zuma wanted. That was the deal. Or/And The pay off was not enough for the FOOL.

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