Investors in Telkom gave its shares a dressing down on Tuesday in the wake of continued plans by the government to sell part of its shares in the fixed-line group to fund the bail out of cash-strapped airline South African Airways (SAA).
After touching a high of R59.79 on Tuesday morning, Telkom shares sunk to a 52-week low of R55.10 on the day, valuing the company at R31.2 billion. Its shares fell by 7%.
At a press briefing hosted by the National Treasury and the Public Investment Corporation (PIC) to quell media reports that there was a plot to remove Dan Matjila as CEO of the PIC, the apparent looming sale of Telkom shares received a special mention.
Treasury director-general Dondo Mogajane said Treasury had approached the PIC to consider buying its Telkom stake in order to cover SAA’s funding gap of about R10 billion.
Treasury and SAA are in talks with lender Citibank on how to settle a R1.8 billion loan to the airline, which is due to be repaid at the end of September. In total, SAA has R6.9 billion of debt maturing at the end of September, said Mogajane.
Matjila said the PIC would be keen to acquire a part of government’s Telkom shareholding but not its entire shareholding due to its “investment parameters”.
In other words, the PIC might not want to be too exposed to Telkom.
“Telkom is in our view a good asset. It’s well managed and we like it. If there is a seller [of shares] out there we would participate to an extent that satisfies our mandate requirements. We have parameters and we may not be able to take the full stake,” said Matjila.
The PIC is SA’s largest money manager and investor in the economy, with R1.8 trillion worth of assets under management on behalf of the Government Employees Pension Fund and other government funds.
It owns 11.9% of the fixed-line group, according to Telkom’s 2017 annual report.
The government owns a 39.3% stake in Telkom worth R12.3 billion at the time of writing. The potential sale of the shares to bail out SAA was mooted in August 23, when Telkom shares were quoted at R65.91, valuing government’s stake at R13.6 billion.
Investor jitters about the pending offloading of shares has wiped off R3.5 billion from Telkom’s market cap since August 23 and effectively reduced the value of government’s stake.
Telkom has already warned investors in a cautionary issued in August that the pending offloading of its shares by government would continue to hit its share price.
Telkom is viewed as a crown jewel as CEO Sipho Maseko and chairman Jabu Mabuza have been largely credited with turning the company’s fortunes around over the last five years. Telkom is now a profitable company and is comfortably growing market share in a tough telecommunications sector.
The government has been criticised for using the proceeds from a cash generative asset like Telkom to bail out a distressed, loss-making and mismanaged SAA.
The final recapitalisation of SAA would be unveiled next month during the Medium-Term Budget Policy Statement, delivered by Minister of Finance Malusi Gigaba.
The looming sale of Telkom shares is a similar strategy used by the government in 2015, when it sold its 13.9% stake in Vodacom to the PIC for an undisclosed amount. The proceeds were used to fund Eskom.