NEW YORK-In its first privatization of a state-owned company, the government of South Africa sold a 25-percent stake in Telkom South Africa on 4 March, raising US$488 million, well below the US$1.25 billion predicted a year ago.
In marketing the deal, Telkom emphasized the potential for further efficiencies in its wireline business, which generates about 70 percent of its revenues, its ability to reduce its US$2.6 billion debt and the growth potential of Vodacom.
SBC Communications and Telkom Malaysia together own 30 percent of Telkom South Africa, which is a 50-percent owner of Vodacom, Africa’s largest mobile-phone operator.
The generally weak initial public offering (IPO) market and concern about a war in Iraq compelled Telkom at the last minute to lower the price of the 139 million share IPO to US$3.50 per share. The government had hoped to price the deal between US$4.20 and US$5.12 per share.
The stock is traded on the JSE Securities Exchange in Johannesburg and, in the form of American Depository Receipts (ADRs), on the New York Stock Exchange. The ADRs, each of which equals four ordinary stock shares, sold for US$13.98 each, down from the anticipated range of US$15.30 to US$18.70.
“The government has taken an informed decision, on the basis of current market conditions and institutional feedback, to reduce the price range and create the right basis for a successful transaction,” said Deutsche Bank, co-lead underwriter, in a statement.
Deutsche Bank and JP Morgan, the other co-lead manager of the IPO, said the deal was “well subscribed.” Although 1.6 million private investors, including 127,000 South African citizens, registered to buy shares of the IPO, the 20-percent discount given to apartheid victims also played a role in lowering the offering price.
“If you’re Fidelity, do you want to own something that is priced lower for others . (who) can tolerate a flat or lower opening and still make a profit?” said Ben Holmes, president of Morningnotes.com.
However, the South African government said the unprecedented interest by members of the country’s black majority marked a milestone in efforts to develop “a new class of black shareholders and a culture of savings.”
While individual South African citizens voted with their dollars in favor of the IPO, the Congress of South African Trades Unions, members of the ruling African National Congress and the South African Communist Party opposed the partial privatization of the state-run monopoly. Regulatory delay and union opposition were key factors in a three-year postponement of the Telkom privatization, which finally occurred amid a depressed market for IPOs in general and telecommunications stocks in particular.
Malaysia’s Maxis and Singapore’s MobileOne (M1) both braved the IPO markets last year.
With its inaugural privatization of a federal monopoly now completed, the government of South Africa plans to proceed this year with a second privatization by selling through an IPO of a 10-percent stake in its electric utility. GW
