Embattled telecom group Telkom said it will use the proceeds from the imminent sale of its masts and towers business to pay down its debt, which dwarfs its market value.
The group on Tuesday announced it is in exclusive negotiations with a consortium of investors to sell the masts and towers that form part of its wholly owned Swiftnet subsidiary.
Investors welcomed the news, with the group’s shares gaining the most since May, up 7.7% to R26.76. The stock is, however, down almost 11% so far this year.
Departing CFO Dirk Reyneke quashed the possibility of a special dividend from the mooted sale, though, saying the focus will be on reducing debt and bolstering growth and cash reserves.
“Any proceeds will go into the financial framework. And it will be applied towards regearing the balance sheet to acceptable levels,” he said.
“Second, investing into the high-growth areas in terms of capex. Third, the residual will become part of the free cash flow pot that could be considered to be distributed out as dividends to shareholders.”
Telkom, valued at about R13bn on the JSE, said net debt stood at just under R18.2bn in the six months to end-September, up 8% from the previous comparable period.
That translates into a net debt to ebitda ratio of 1.8 times. Ebitda is earnings before interest, tax, depreciation and amortisation.
When Telkom tried to list Swiftnet in early 2022, it had been valued at about R13bn. But it is unlikely that such an amount is currently attainable because valuations have fallen. Business Day understands that initial listing plans were abandoned because market conditions only allowed for a return below R10bn for the unit.
Group CEO Serame Taukobong would not be drawn on the bidding party for the masts and towers.
“According to JSE rules, we can’t declare who, where and the quantum” of the proposed deal, he said, adding there will be an update in the next 30 days.
The company would only say the preferred bidder includes a BEE partner and is managed by a “reputable private equity firm”.
Telkom, which has the government as its largest shareholder, was a few months ago subject to a hostile bid by former CEO Sipho Maseko, which it rejected. A year earlier, MTN unsuccessfully tried to buy SA’s third-largest telecom operator.
Still, the group on Tuesday indicated it is willing sell parts of the business.
“While the board has approved an outright sale of the masts and towers business, other business units were investigated for minority and majority strategic equity partnerships to realise value and at the same time securing benefits from future capabilities and/or scale enhancements,” the company said.
Swiftnet generated a profit of R188m in the latest results in which the subsidiary was classified as for sale.
“Gyro’s masts and towers business (Swiftnet), which is classified as held for sale (presented as a discontinued operation) continued to commercialise, driven by additional tenancies on the existing portfolio and ongoing equipment upgrades by mobile network operators in enhancing their capacity and network, including deploying 5G,” the company said.
“Telkom will consider further opportunities to realise value, including those in relation to the minority partnerships for Openserve and a strategic equity partner for BCX,” it said.
Overall group revenue increased 2.5% to R21.8bn and core earnings (ebitda) by 1.7% to R5bn, driven mainly by greater mobile traffic, the rollout of fibre and its growing IT business.
Operating profit improved 58.2% to R2.2bn, profit 52.3% to R976m and headline earnings per share (HEPS), a common profit measure in SA that excludes certain items, 46.7% to 195c.
That came despite a tough local trading environment, characterised by high inflation, elevated interest rates and lower consumer and business confidence.
The outlook for the rest of the financial year is unchanged, with Telkom expecting revenue and core earnings to grow at low to mid-single digits.
“If you look at what we’re doing with our infraco [infrastructure company] strategy, we are beginning to reflect [on] and use our assets much better, and we continue to drive the growth in mobile,” Taukobong said.
“More than anything else, we are the core of digital provision for connectivity in the country and that’s important.”
Update: November 21 2023
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