When government announced it was bringing in outside shareholders to take a majority holding in South African Airways, there was a lot of chatter that it was now following the “Telkom model”.
This is where, like the telecommunications group, the airline would have the state as a passive shareholder and players in the private sector would run the show.
As someone who has covered Telkom on and off for most of my journalistic career, I’m confused by this analogy. Why? Because over the last 20 years the state has not exactly covered itself in glory when it comes to letting its various boards and CEOs run the business.
The government’s first stab at bringing in outside shareholders was when it brought in Thintana Communications in 1997 to modernise the fixed-line utility. Thintana Communications was a joint venture between the US’s SBC Communications, which owned 60% of the venture, and Malaysia’s Telekom Malaysia Berhad, which owned the remaining 40%.
Thintana Communications collectively owned 60% of Telkom and the state owned about 40%.
Didn’t work
The aim was to use their expertise to improve services and expand services to the poor through licensing stipulations. The idea was that bringing in Thintana Communications would prepare Telkom for a deregulated telecoms market and address South Africa’s development goals.
It did not work out that way.
It is now generally viewed that SBC Communications – which led the consortium – were more cost-cutters than modernisers. It used the monopoly power in the fixed-line sector to push up prices and saw its customers put up with a falloff in service levels.
The government also failed in using the operator to extend services to the underprivileged, as Telkom in that period cut millions of lines that were rolled out to the poor because they could not afford it.
By the time Thintana Communications sold off its holdings, Telkom was a listed entity on both the JSE and the New York Stock Exchange.
With the state having a large minority holding, but not a controlling stake, it’s easy to assume that the government would have a say in – but would not directly control – what was happening at Telkom, right? Wrong.
It turns out there was a thing called a “golden share”, which was originally held by Thintana Communications. This A-share gave the holder the right to appoint five of the 12 board members, including the chair.
Thintana Communications passed this share on to the government, giving it a direct hold over the company.
In effect, between the time Thintana Communications sold its holding in 2004 until the JSE did away with this share in 2011, the government had control of a listed company.
This era was not a good one for Telkom. There was constant interference on the part of the government in the board, and for some or other reason Telkom could not hold onto its top executives with it losing five CEOs in just about as many years.
Low point
The low point of state intervention in the group was probably when the then-minister of communications, Dina Pule, wanted to vote at the 2012 AGM, despite a proxy having been sent a few days prior to the meeting. Her ham-handed intervention eventually saw the removal of several Telkom board members.
Under current CEO Sipho Maseko, who has been in charge since April 2013, Telkom has grown from strength to strength. Even so, the possibility of state intervention in its valuation looms.
Considering what Telkom has gone through over the past 20 or so years, maybe using it as a template for a possible SAA deal is not such a good idea. (To be fair, the government has let Maseko run the show without intervention for the better part of a decade.)
Even so, my advice for anyone taking a holding in the airline is to come up with an airtight shareholder agreement with the government, which puts strict curbs on what it’s allowed to do and what is not allowed.
The last thing you want is an unpredictable state actor thinking it has the right to get its way in a boardroom fight when it has neither the shareholding nor the votes to get its way.
Now read: Telkom shares rocket higher on full-year earnings bounce
- This piece was originally published on Moneyweb and is used here with permission
