France Telecom exit fuels talk of new Telkom Kenya owners

By: LILIAN OCHIENG

The exit of France Telecom from Kenya by selling its entire stake in Telkom Kenya last week has set tongues wagging on who will be the ultimate owner of the country’s third mobile company.

The speculations are largely fuelled by the fact that the buyers — Helios Investment Partners — are not known to be long-term investors: “Their investment period is five to seven years after which they will exit,” says Mr Kariithi Murimi, an investment risk consultant. “They may be buying to resale Telkom Kenya licence later.”

Analysts who spoke to Smart Company, however, list Equity Group and Wananchi Group as the two companies that could finally bag the deal.

HELIOS’ DEALS

And here is why — the two have cultivated close ties with Helios.

Just a month ago, Helios sold its 24.99 per cent stake in Equity while in October 2014, it pumped Sh4 billion into Wananchi Group.

Already, Equity and Wananchi are in the telecommunication industry and for them buying Telkom Kenya would only be a matter of scaling up their enterprises to turn into fully fledged mobile phone companies.

Equity holds a second tier licence, operating mobile phone services through a partnership with Airtel Kenya while Wananchi Group — the owners of Zuku TV — is a market leader in the fixed data market.

HEARTBREAKS

“Helios has a stake in Wananchi, a position purchased in 2014; we wonder whether the relationship between the two portfolio investments might at some point find synergies,” a market update last week by Standard Investment Bank, which has been tracking listed technology companies highlighted.

The 70 per cent stake buyout could also interest Equity, whose history of flirting with mobile phone companies is long but one punctuated by heartbreaks.

In 2006, for instance, Equity became the first bank to partner with a mobile phone company to launch a money transfer service only for the product to collapse following failure to agree on the revenue sharing formula.

In 2014, Equity returned to the mobile money transfer market, introducing Thin SIM technology and applying for a mobile virtual network operator licence.

Equity has always stated its interest in having total control of its customers’ SIM cards, which is why it applied for its own operator permit.

Therefore, getting total control of the whole system could be equally appealing.

LONG-TERM SHIFTS

Other analysts say the five to seven years, which Helios is expected to hold on to the stake, is a long period within which fundamentals could shift, altering the current predictions.

The projections also depend largely on the direction that Helios wants to take Telkom Kenya.

It is envisaged that Helios, which has a unique investment strategy, could divert entirely from Telkom Kenya’s voice business, leveraging on its strengths which are in fibre optic connectivity.

“Helios has a game plan coming into a market which has seen previous players struggle to gain traction,” added Standard Investment Bank. “We think Telkom Kenya will retreat towards the wholesale space, providing Internet data and infrastructure to other telcos.”

For now, Helios seems to be playing its cards close to its chest with little information coming through.

According to CA Director-General Wangusi, however, Telkom Kenya is yet to officially contact the watchdog on approval of the 70 per cent sale.

“When the transfer takes shape, we will then be able to know exactly who will operate the firm and if the current top management still remains. Generally, details of the sale and mode of operation will be clearly stated,” said Mr Wangusi last week.

Mr Murimi, who trains board members on risks facing the telecommunication sector, said: “Helios already has a team which will take charge at Telkom Kenya board.

Most likely Vincent Lobry, the Telkom Kenya CEO, faces an exit after the transfer of 70 per cent stake to Helios.

The Telkom Kenya CEO will also exit in operational changes meant to tighten management and increase focus on core business objectives.”

REAL ESTATE

Helios manages approximately Sh300 billion worth of investments and prides in purchasing brands in Kenya, Nigeria and South Africa, creating value in them, before selling.

Of particular interest to the new investor is Telkom Kenya’s vast real estate empire, about 335 properties priced at about Sh9.4 billion.

Standard Investment Bank senior research analyst Eric Musau is optimistic that Helios will appoint experts to run its Telkom Kenya business since they have no expertise on telecommunications.

Helios’ strategy is seen in previous operations such as the recent purchase of 12.4 per cent shares worth Sh9.5 billion in Africa Oil.

The equity firm nominated a non-executive director through one of its investment vehicles to sit in Africa Oil’s board.

“This allows them to work out control and operation issue once they are on board,” said Mr Musau, adding that Helios’ entry into the market may not be disruptive to the industry.

FIGHTING FOR DOMINANCE

The company enters the market at a time when the dominant telco, Safaricom, together with its rival, Airtel, are battling over regulations on dominance.

This could give it focus to capture more market share in data, voice, SMS as well as mobile money.

Mr Murimi states that as the two telcos fight over dominance, Helios will be scouting for a CEO with influence on telecommunications to run its business.

“The regulations on dominance will not be quick the way people are thinking. Members of Parliament are starting to understand that applying dominance regulations is petty and the noise will slow down,” said Mr Murimi.

“We thrive to maintain discipline on price/valuation, governance and control to realise greater returns,” Helios said. The private equity firm emerged winner among a number of Telkom Kenya suitors because of its financial strength as well as firm grip in a number of local entities.

Vietnam’s Vietel Group failed in the quest to acquire Telkom Kenya last year.

Helios has significant stake at Vivo Energy, which operates locally as Shell, and 12.4 per cent stake in Africa Oil.

DYNAMICS

The current play in the telecommunications industry will eventually lead us to which company becomes the powerhouse.

Will it be Safaricom, which already leads by a great margin, Airtel which is riding on losses and has been pushing for dominance rules to come to its rescue, or Helios through its appointed managers.

Analysts noted that dynamics currently facing the telecom market could either propel Telkom Kenya’s revenues or result to its merger with an existing telco, leaving only two major players in the market.

“This moment provides an opportunity for Telkom Kenya to grow if it has a great strategy. Kencell which is now Airtel came to the market early but it is still struggling after varied changes in ownerships and strategies,” said Mr Murimi.

Telkom Kenya is owned 30 per cent by the National Treasury.