Kenyan Operator Writes Off Interconnection Debt

Kenya's GSM network operator, Safaricom has secured a US$170 million loan facility which will be used in part to write off the debt owed to it by majority shareholder, Telkom Kenya. Due to interconnection fees, the state owned landline operator, Telkom Kenya owes Safaricom around US$30 million, which the indebted landline operator cannot hope to repay. Hence, Safaricom has come up with the novel idea of increasing its own debt and using the funds to make a special dividend payment to its shareholders.

This payment from Safaricom to Telkom Kenya will then enable Telkom Kenya to pay the debt it owes to Safaricom - in effect, the company is writing off the debt.

"The funds that we raised today will be used to repay the existing borrowing, to pay a special dividend to Safaricom shareholders and to finance the network expansion," Chief Executive Michael Joseph told a news conference.

"In order to reduce the amount of debt owed from Telkom Kenya - we decided to pay a special dividend, the consequences of that is also to clean up the books of Telkom Kenya which will help them during the privatisation process," he said.

Telkom Kenya, a state owned company which is due for privatisation owns 60% of Safaricom, with the remaining 40% being owned by Vodafone. The Kenyan government has offered to sell a 9% stake to Vodafone for a figure in excess of US$100 million, although Vodafone recently offered less for an 11% stake, which would have given it control of the company. With Telkom Kenya due for privatisation itself though, Vodafone could secure control of Safaricom by buying up shares in Telkom Kenya. 26% of the landline company will be sold to a strategic investor, but 34% will be floated in free trade on the stockmarket, giving Vodafone a route to take control of the mobile operator indirectly.

In other news, both Kenya's mobile phone networks will shortly be granted their own international connections, enabling them to bypass the gateway operated by Telkom Kenya."

Posted to the site on 18th April 2006