A reported R32 billion investment in Telkom's embattled mobile arm has raised alarm bells, due to the amount of money involved and the lack of information that has, so far, been made public.
While Telkom would neither confirm nor deny its involvement with what BusinessTech says is a South-East Asia investment company, government shareholder representative communications minister Yunus Carrim knows "nothing" about the reported investment.
According to BusinessTech, an unnamed company has apparently proposed to invest $3 billion into Telkom Mobile to buy "up to 1 600 Telkom towers and then build an additional 8 400 towers". The additional towers are needed to compete against mobile giants Vodacom and MTN, says the report, citing a "document".
Shares in Telkom surged as much as 5.9% before closing at a new 52-week high - gaining 2.58% and beating out the JSE's All Share index's 0.25% decline - on the back of the news.
Not ringing true
Despite investors' excitement at the much-needed cash injection, sceptics say the amount - double Telkom's entire market capitalisation - is far too high. Noah Greenhill, head of corporate finance at Sasfin, says the amount reportedly offered is "obscene".
Greenhill says an offer of double market capitalisation for part of a division must be questioned. Telkom's market capitalisation is currently around R17 billion.
Ovum analyst Richard Hurst says "it's a lot of loot for the towers". Even if the deal included a factory, which would make the structures and sell them into Africa, the reported amount would be far too high, he comments.
In addition, it would be risky to build towers in the hope that new customers would come on board, says Hurst. "What if the capacity is not taken up?"
Hurst points out KT Corporation offered R3.2 billion for a 20% stake in the entire company in 2011. He says someone could be stirring the market to get a reaction. "Something doesn't make sense here."
No confirmation
Telkom, which would not deny or confirm the reported investment, says it "continues to review its operations in an effort to stabilise the business and unlock its value".
The fixed-line operator is engaging with "various parties to consider best options for the business", but is not in a position to disclose any further details at this stage, it says. "We will inform the market and all our stakeholders of the outcome of the discussions at the appropriate time."
If the news is true, it would be a dramatic boost for Telkom, says Hurst. Telkom Mobile, which has 1.6 million active subscribers and 2 578 base stations, has been loss-making since its launch, initially as 8ta, in October 2010.
Telkom CEO Sipho Maseko said last November the group was in talks with some potential partners around options to de-risk the business and trim its capital expenditure appetite.
Maseko said the outcome of these talks would be announced "at the right time".
Greenhill, previously the JSE's senior GM of marketing and business development, says Telkom is only obliged to tell the market when it has a firm offer, or negotiations have reached a point where price-sensitive information may be leaked.
Telkom would not be under an obligation to share an unsolicited bid it has no intention of agreeing with, adds Greenhill. He notes companies do not have an obligation, under JSE rules, to deny speculation.
Share