Kenya liberalized its telecoms sector in 2000, but a first attempt to privatize troubled, state-run Telkom Kenya got bogged down and went nowhere.
Telkom Kenya enjoyed a monopoly on landline operations in the east African country, but its business suffered as Kenyans eagerly swapped fixed-line phones for mobiles. Inefficiency and mounting debt also plagued to company's operations.
In 2006, eager to rescue Telkom Kenya before it collapsed, the Kenyan government turned to IFC for help. Kenya wanted a comprehensive solution that would restructure the company, benefit the company’s employees, strengthen competition in its telecoms sector, and give government coffers a boost.
IFC, which had gained experience in Kenya advising on the privatization of other state assets, began the complicated and politically sensitive process of supporting Telkom Kenya's rebirth by helping it secure $81 million in financing -- money it needed to manage the cost associated with the transition for thousands of its employees.
The financing was secured by pledging part of Telkom Kenya's 60 percent stake in Safaricom, a hugely successful mobile phone operator and one of Kenya’s most profitable companies.
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“When it came to Telkom we wanted to move quickly and we knew IFC could make it happen. They brought on board a host of consultants which made the complicated process much easier and faster.”
“IFC showed us how best to proceed with both the Telkom and Safaricom transactions and we benefited from their support. Having their name on the transactions gave comfort to investors.”
-- Kenyan government Investment Secretary Esther Koimett
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IFC then opened up and ran a bidding process for 51 percent of Telkom Kenya, which was won in late 2007 by a consortium led by France Telecom. The final bid topped even the best expectations of Kenya’s government.
"We got the highest bid from France Telecom at $390 million, which is way above our reserve price of $300 million," Kenyan government Investment Secretary Esther Koimett told a news conference at the time.
IFC also helped Telkom Kenya unbundle its stake in Safaricom, with ownership being transferred to Kenya’s government. This led to the flotation of 25 percent of Safaricom in June, 2008. The initial public offering – the largest ever in east Africa -- was five times over subscribed, raising over 50 billion Kenyan shillings for the government.
POSITIVE MESSAGE
The money raised by the partial sale of Telkom Kenya and Safaricom came at a critical time for Kenya, whose economy was scarred by rioting that followed a disputed election. Budgets for roads, housing, and other infrastructure improvements are expected to benefit from the windfall.
The successful restructuring and sale of Telkom Kenya, and subsequent listing of Safaricom on Nairobi's Stock Exchange, both involved participation by foreign investors, injecting confidence back into the country’s economy at a difficult time.
An invigorated Telkom Kenya will also bring increased competition to the sector and is expected to role out its own mobile telecommunication services and enhanced broadband services, directly benefiting consumers.
For its part, IFC was able to offer the Kenyan government solutions to a complicated restructuring package that demanded transparency and the need to balance the interest of several players, both public and private.
"IFC's central role on this project highlights our commitment to Kenya and supporting the growth of its communications sector," said Bernard Chidzero, General Manager of IFC's Private Enterprise Partnership for Africa. "We provided a range of business advisory services to government and other partners, creating a transparent environment where several players from the private and public sector could do business."
For more information contact:
Jason Hopps
Communications Officer
Phone: +2711 731 3120
E-mail: jhopps@ifc.org
