South Africa targets R4 billion from Telkom stake

South Africa is seeking to raise as much as R4 billion ($297 million) from the sale of part of its 39% stake in Telkom SA SOC to raise funds for the country’s unprofitable state airline and post office, according to two people familiar with the matter.

The bulk of the shares in the fixed-line operator earmarked for a sale will be bought by the Public Investment Corp, said the people, who asked not to be identified as the deal hasn’t been finalized. The PIC, Africa’s biggest money manager and administrator of South African government-worker pensions, has agreed to increase its 11% stake in Telkom, they said.

R4 billion would be almost 16% of the company at current prices.

A final decision hasn’t been made and details will be discussed by the government this week, said one of the people. Telkom staff may also be given the opportunity to buy some of the shares, a second person said.

The government’s whole shareholding is worth more than 10 billion rand and it would like to sell some of the Telkom stake to entities that aren’t already in the industry, according to National Treasury spokesman Mayihlome Tshwete. The deal could also be used to boost the amount of Telkom shares held by black shareholders, he said.

South African companies are being pushed by the government to boost black ownership of the economy to help redress the economic inequalities stemming from white-minority rule known as apartheid.

Airline woes

Tshwete declined to comment on the size of the sale or the pricing. The amount will be determined by the government’s funding requirements and priorities, the ministry said in emailed comments.

The PIC “has not been approached for a transaction of this nature at this time,” spokesman Sekgoela Sekgoela said in emailed comments “As Telkom is a listed entity, the PIC would prefer not to comment on market speculation about the sale of stock.”

The deal will help Finance Minister Malusi Gigaba deliver on his plans to reduce the Telkom stake as a way of recapitalizing South African Airways, which has struggled as lenders and asset managers refuse to take on more of their debt.

SAA needed a bailout earlier this year to avoid defaulting on loans, and the government is seeking to shore up its balance sheet to give new chief executive officer Vuyani Jarana time to deliver on a turnaround plan. The South African Post Office also needs cash, Gigaba said in October.

The government plans to buy back the Telkom shares at a later date, Gigaba said. Uncertainty surrounding the disposal has weighed on the company’s share price, which has declined by more than a third in 2017, valuing the business at R25.7 billion.

The PIC also came to the government’s aid two years ago when it bought shares in mobile-phone company Vodacom Group Ltd. to help raise cash for state power utility Eskom Holdings SOC. The money manager hasn’t been formally approached by government, and details of the deal could still change, according to one of the people.

Telkom can’t speak on behalf of any of its shareholders, a spokesman for the Pretoria-based company said by email.

Read: Moody’s places Telkom on review for downgrade

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