HomeFinancial/RegulationLittle progress on Telkom’s towerco sale despite due diligence 

    Little progress on Telkom’s towerco sale despite due diligence 


    South Africa’s government-owned telco issues a renewal of cautionary notice to update on the apparent lack of movement

    Despite announcing it was in exclusive negotiations with a preferred bidder on the possible sale of its masts and towers business Swiftnet last November, Telkom has now issued a Johannesburg stock exchange note to investors explaining why nothing much has happened yet.  

    In November, the preferred bidder was revealed as a consortium of equity investors, including a Black Economic Empowerment partner, led and managed by a “reputable private equity firm”. In its latest note, the telco suggested: “continued progress has been made on meeting certain agreed milestones under the exclusivity arrangement, including that the bidder has completed its confirmatory due diligence.” 

    Telkom added the usual caveat that: “the exclusive negotiations may or may not lead to a transaction, and therefore, are advised to exercise caution when dealing in the company’s securities until a further announcement is made.” Shareholders were also reminded any deal will be subject to conditions including regulatory and shareholder approvals  

    The telco began negotiations earlier this year for the sale of its Swiftnet telecoms towers unit which it considers undervalued because it is hampered by the group’s structure current structure. It had planned to separately list Swiftnet on the Johannesburg Stock Exchange in 2021 but this was suspended in March 2022 due to the impact of the Russia-Ukraine war on financial markets. 

    It is also looking at selling minority stakes in its subsidiaries Openserve and BCX, respectively specialising in fibre optics and IT systems integration. At the time, Telkom Group CEO Serame Taukobong (above) said the Swiftnet transaction would: “enable us to strengthen our balance sheet and continue to execute our strategic goals.” 

    Moody’s is relaxed 

    Last month, credit ratings agency Moody’s produced a mixed report card for the telco affirming its corporate family rating of Ba2 but downgraded its national scale rating (NSR) to from The outlook on all ratings remains stable. The downgrade was reflective of Telkom’s weakly positioned Ba2 rating in comparison to similar rated South African companies. However, the agency’s expectation is that Telkom’s credit metrics will recover over the next 12 to 18 months to levels that it deems sufficient for its Ba2 rating. 

    Moody’s suggested that Telkom’s EBITDA would recover to around ZAR11bn over the next two years from ZAR9.6bn as of September 2023 because of its cost saving measures and the normalisation of expenses from the expansion of the postpaid book in financial year 2023. Swiftnet is estimated to be worth ZAR8.7bn and owns a portfolio comprising around 6200 towers across South Africa. Telkom has said it expects the sale to be completed by 2025.