New allegations of mismanagement and corruption at Telkom are another reason for the lack of investor confidence in the country's largest telecommunications operator, says Investec Asset Management analyst Rob Forsythe.
“Currently, Telkom is a bit of a rudderless ship. The current status quo means that it is not behaving in the interests of its minority shareholders, but at the same time, its largest shareholder (the South African government) has not given a clear indication of what it wants Telkom to do,” Forsythe says.
Late last week, the Communications Workers Union released a dossier to a number of watchdogs, including the Public Protector, detailing allegations of corruption and mismanagement within Telkom itself, and its Nigerian subsidiary, Multi Links. Telkom responded that it was already dealing with a number of the issues.
Illustrating the lack of confidence is Telkom's current share price that is at R35.95, a rise of 48c, or 1.4% on the day.
However, according to financial news wire Inet-Bridge, the net asset value of the Telkom share stood at R56.75 as of March this year, and is expected to have drifted lower, to around R52 per share.
“What this tells us is that investors do not believe that Telkom is making the use of its assets to produce a return for shareholders,” Forsythe says.
Telkom's share price is far off the heady days of September 2007, when it touched R190.99, when it still owned a 50% stake in cellular network operator Vodacom, and it was on track for its Africa expansion. But it sold the Vodacom stake in June this year and its African safari has come to a grinding halt with its urgent disposal of Nigerian operation Multi Links.
The best level the share hit after the Vodacom disposal was R62, in June 2009, and it has been a steady slide since then.
Government owns the largest block of Telkom shares - in total, about 39.5%. It also has the right to appoint five out of the eight Telkom board members and the chairman. However, government is due to lose this “golden right” in March, when it will be treated as another shareholder.
“Some kind of decision has to be made on what government wants Telkom to be. Maybe it is in the best interests of the country to de-list it entirely and make it a state-owned enterprise again,” Forsythe says.
Communications minister Roy Padayachie, who issued a strong statement yesterday about having confidence in the Telkom board to pursue the allegations of corruption, also expressed his concern to ITWeb this morning about Telkom.
“Telkom still plays an extremely strategic role in the South African economy. We have a limited opportunity to get Telkom to become involved in government's programme of action,” he says.
Padayachie would not commit himself to saying what government's ultimate aim for Telkom is, but says he wants to have some kind of meeting with the Telkom board soon.
Both he and Forsythe agree that ensuring that Telkom has a stable and permanently appointed executive management as soon as possible is urgent.
“Telkom has had an extremely high turnover of its executive management, and that impacts on the group's strategy,” Forsythe says. “We have seen the terms for non-executive directors, even those appointed by government, decline sharply due to the rigors of dealing with the Telkom board.”
Acting Telkom group CEO Jeffrey Hedberg is not expected to continue in his current position after March 2011, but it is unclear if he will take up a permanent appointment.
“What Telkom needs as its group CEO is someone who does not need the job,” says an industry insider who refuses to be named. “In that way you get a person who is able to carry out the tasks of what needs to be done without any worry if they will be fired.”
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