Telkom, Airtel merger hits fresh hurdle

The merger between Airtel and Telkom Kenya has hit a fresh hurdle after the Ethics and Anti-Corruption Commission (EACC) insisted Thursday that it is yet to clear the deal.

Earlier reports had stated that the anti-graft agency had approved the transaction.

The EACC told Parliament Thursday that that investigations related to previous deals at Telkom Kenya were still ongoing, adding that the freeze on the merger deal remains in place.

The new development looks set to delay regulatory approvals for the merger that is aimed at creating a stronger challenger to Safaricom, which controls 65 percent of the mobile telephony market share.

The EACC position is at odds with statements to the Senate from Telkom Kenya CEO Mugo Kibati indicating that the anti-graft agency had cleared the deal because both firms are private companies.

“We have not approved any merger, but we have issued advisories to responsible government entities to protect the interest in the approval process of the merger,” David Too, the director of legal services, told the Committee on Implementation of House Resolutions.

“We are seeking mutual legal assistance from several overseas countries that include Mauritius, Cayman Islands, Netherlands, United Arab Emirates, India, Sudan, France and South Africa.”

He added that EACC has asked the Communications Authority of Kenya (CA) and the Competition Authority (CAK) to halt approval of the deal, pending conclusion of the investigations.

The probe is seeking to establish the circumstances under which the Treasury ceded further ownership of Telkom Kenya to Orange, the French multinational that later sold its stake to private equity fund Helios.

The anti-graft agency earlier said it is investigating whether public funds were lost when the Cabinet approved a plan in 2012 to convert the Treasury’s loans in Telkom Kenya into equity as part of a plan to recapitalise and restructure the company’s balance sheet.

In 2013, France Telecom bought an additional 11 percent stake in Telkom Kenya that was held by a Dubai-based private equity firm in a deal that tightened the French multinational’s grip on the formerly State-owned operator.

The government owns 40 percent of the shares while Helios holds the remaining 60 percent through its investment vehicle Jamhuri Holdings.

That means Telkom Kenya is not subject to the State Corporations Act, and by implication, it cannot be investigated by the EACC as MPs had demanded, Parliament heard in reference to earlier reports that the anti-graft agency had cleared the deal.

“Preliminary findings established that Jamhuri Holdings Ltd is incorporated in Mauritius and is owned by Helios Investment Partners LLP (Helios), a company incorporated in Cayman Islands,” Mr Too said.

Safaricom has also asked the CA not to approve the merger before Telkom Kenya and Airtel clear the Sh906.6 million and Sh390.7 million that they owe respectively for interconnection, co-location and fibre services.

The merger will see the transfer of Telkom Kenya’s mobile, enterprise and carrier services businesses to Airtel in exchange for a stake in the firm to be known as Airtel-Telkom.

The merger deal will not involve Telkom Kenya’s extensive real estate holdings and some government contracts for unspecified services, Telkom had said in February when announcing the deal.

Telkom Kenya has since put on sale Sh3.87 billion properties spread across the country as it seeks to raise cash to contribute to the planned merger.

The firm has hired a property dealing firm, Axis Real Estate, to dispose of the prime assets sitting on about 17.8 acres of land.

Safaricom wants the money it is claiming to be paid before the deal is sealed.

Telkom Kenya reckons that Safaricom #ticker:SCOM is seeking to use the debt to delay the merger.

Telkom accounted for 7.9 percent of Kenyan mobile telecom subscribers in March, behind second-placed Airtel, which had a 26.1 percent market share.