Out-Law News 1 min. read

South Africa selling Telkom stake to cover budget shortfall


South Africa is disposing of its minority stake in national telecommunications provider Telkom to cover a budget shortfall of ZAR3.9 billion ($278 million), the country’s finance minister has announced.

Malusi Gigaba made the announcement during his medium-term budget policy statement to the National Assembly – but said the government would have the option of buying back the shares at a later date.

The medium-term budget, which projects spending over a three-year period, comes against a backdrop of “difficult” economic circumstances, in a year when South Africa had to recapitalise the national carrier (SAA) (127 KB / 1-page PDF) and the South African Post Office, the government said.

According to the South African Government News Agency, SAA is “set to receive a total of ZAR10bn ($711m) in bail-out money, plus ZAR3.7bn ($263m) to recapitalise the Post Office”.

Diane Mullenex of Pinsent Masons, the law firm behind Out-Law.com, said: “Historically, this kind of asset-sale behaviour has signified a reduction in an economy’s ability to grow through spending. While such a move undoubtedly points to tough economic circumstances throughout the country, measured financial consolidation shall hopefully lead to a brighter future for South Africa – narrowing deficit and preventing further damage.”

Mullenex said: “While lenders and multinationals may think thrice before committing to any investments at this point, such circumstances undoubtedly never fail to offer opportunities to prudent and timely investors.”

Gigaba said none of the options available to the government were “free of pain”.

“Tax revenue is projected to fall short of the 2017 budget estimate by ZAR50.8bn ($3.6bn) in the current year, the largest downward revision since the 2009 recession,” Gigaba said.

According to Telkom, the government currently holds a 39.3% stake in the company, which has four million active mobile subscribers and more than two million fibre-to-premises customers. Institutional shareholders hold a total 51.8% stake in the company. Telkom Mobile was created as the mobile business arm of Telkom in 2010.

Gigaba said the Telkom shares sale was in line with previous policy decisions, such as the ZAR23bn ($1.6bn) allocation to state power utility Eskom in 2015 that was financed by the sale of the government’s shares in Vodacom. 

We are processing your request. \n Thank you for your patience. An error occurred. This could be due to inactivity on the page - please try again.