A battle over control of Telkom may be on the cards. Communications minister Roy Padayachie has warned that government does not want to lose the control it exercises over the JSE-listed group when special rights it enjoys expire early next year.

Padayachie tells TechCentral that government is concerned about the implications of the termination of a special share — the “class A” share — on 5 March 2011. This share, sometimes referred to as government’s golden share, gives it a number of rights, including the right to appoint the chairman of Telkom’s board of directors.

“This has enormous implications for us because, in a sense, we’d lose control of the institution,” Padayachie says. “We’ve asked for a discussion on these matters within the state and we will work collaboratively with other ministers on [this].”

But JSE CEO Russell Loubser warns the bourse will fight any attempt by government to extend the special rights it enjoys over ordinary shareholders.

“We are prepared to keep an open mind and listen to people, but people must also realise we didn’t get to be rated as the number one stock exchange in the world from a regulation point of view by having all sorts of fuzzy and lax standards,” Loubser says.

“Everybody must understand that. I mean everybody must understand that.”

When government listed Telkom in 2003, it insisted on retaining the golden share to give it more rights than ordinary shareholders.

Another special share, known as the “class B” share, is held by the Public Investment Corp. The PIC, which invests public sector employees’ pension fund money, acquired the class B share from Thintana, Telkom’s former foreign equity partner.

Telkom Towers — Government doesn't want to lose control of Telkom

At the time of Telkom’s listing, the JSE objected to the existence of the class A and B shares, but allowed the group’s listing to go ahead in the national interest. “We were pragmatic about it at the time,” Loubser says.

Former communications department director-general Mamodupi Mohlala earlier this year mooted the idea a new black economic empowerment deal at Telkom, which presumably would have involved government selling shares to facilitate it.

Either government or the PIC must facilitate a new empowerment deal if the group is to avoid issuing new shares, which, in turn, would impact on the share price to the detriment of ordinary shareholders.

Senior Telkom sources say it’s important for Telkom to conclude a new empowerment deal soon, and so the issue can’t be put off.

However, if government is serious about maintaining control of Telkom, it may have to increase rather than reduce its shareholding.

Padayachie says the issue will be discussed in an inter-ministerial meeting “within the next two or three weeks”. “We want to see what medium and long-term perspectives we have on a company like Telkom,” he says.

“I don’t think the state would want to pull out of Telkom. It’s a strategic asset,” Padayachie says. “We need to see how we can safeguard the position we’ve enjoyed through the golden share.”

He says Telkom is considered strategic because it “controls infrastructure throughout the country”.

“It seems to me that it would be necessary to keep control. We need Telkom. Telecoms is too important an industry for us not to have a direct and active presence in the sector.

“We have to look at all the assets the state owns in the sector to see if there is a better strategic focus we can bring to these investments. Telkom forms a critical component of that,” Padayachie says.

“It’s so important because telecoms is one of the sectors we are relying on for the creation of jobs in the new growth path.” — Duncan McLeod, TechCentral