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Kenya, Telkom Kenya Telecoms

Restructuring Telkom Kenya to boost profitability and competition in Kenya's telecoms sector

The Government of Kenya (GoK) liberalised the country's telecoms sector in 2000. However, the first attempt to privatise the troubled, state-run Telkom Kenya was unsuccessful. Whilst Telkom Kenya enjoyed a monopoly on landline operations in the east African country, its business suffered as Kenyans eagerly swapped fixed-line phones for mobiles. Inefficiency and mounting debt also plagued the company's operations.

Telkom Kenya

In 2006, the GoK decided to concession Telkom Kenya to private sector investors. They appointed the Independent Finance Corporation (IFC), using funding from DevCo, to act as transaction adviser in this process. Kenya wanted a comprehensive solution that would restructure Telkom Kenya, benefit the company's employees, strengthen competition in the telecoms sector, and increase government revenues.

IFC began the complicated and politically sensitive process of supporting the rebirth of Telkom Kenya. The first step was to help secure US$81 million in financing to manage the costs associated with employee transition. The financing was secured by pledging part of Telkom Kenya's 60% stake in Safaricom, a hugely successful mobile phone operator and one of Kenya's most profitable companies.

IFC ran a bidding process for 51% of Telkom Kenya. The process was won in late 2007 by a consortium led by France Telecom, who launched a final bid that exceeded the Government of Kenya's expectations. IFC also helped Telkom Kenya to unbundle its stake in Safaricom, with ownership being transferred to the GoK. This led to the flotation of 25% 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.

The money raised by the partial sale of Telkom Kenya and Safaricom came at a critical time for Kenya, whose economy was scarred by riots following 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, involved participation by foreign investors, injecting confidence into the country's economy. An invigorated Telkom Kenya will also bring increased competition to the sector. The company is expected to roll out its own mobile telecommunication and enhanced broadband services. These developments will help to bridge the telecoms and digital divide in Kenya, furthering its pro-poor benefits. As has been seen elsewhere in Africa, extended mobile and broadband services will help to widen trade networks for local farmers and traders, boost small business profits, reduce travel costs and increase wider economic growth.

For its part, IFC, with crucial funding support from DevCo, was able to offer the Government of Kenya solutions to a complicated restructuring package that demanded transparency and a delicate balancing of public and private interests.