Convergence Partners, an investment company controlled by Dimension Data SA chairman Andile Ngcaba, wants to up its equity stake in Telkom, provided it can get more say over the fixed-line operator’s strategic direction.
This comes nine months ahead of the unwinding of the funding structure for the controversial Elephant Consortium. The Ngcaba-led Lion Trust is a 50% shareholder in Elephant, which acquired a stake in Telkom when foreign partner Thintana divested its stake several years ago.
Elephant, also known as Newshelf 772, holds about 7% of Telkom’s equity. The Leopard Trust, led by Gloria Serobe, makes up the other half of the consortium.
Ngcaba’s stake in Elephant is housed in Convergence Partners, an investment holding and private equity company in which he has an 88% stake.
Convergence holds 50% of the Lion Trust and it is through this company that Ngcaba hopes to become more actively involved in Telkom.
With the Elephant funding structure due to be unwound in mid-2010, Ngcaba, a former director-general in the department of communications and long-time ANC member, is considering his options.
“We’ve never been an active shareholder in Telkom but there is a lot of value we can add to the company,” says Convergence Partners CEO Brandon Doyle. “There’s a role we can play in helping the guys think through certain things, and introduce them to activities we are already involved in.”
Convergence has a number of telecoms investments in SA and in East Africa. It owns 12,5% of the Seacom undersea cable and has shares in Internet service providers in Mozambique and Tanzania.
Any decision by Convergence to increase its stake in Telkom is, however, contingent on it being able to play a more active role in the company, Doyle says. “It makes us feel a little exposed that we have no say over strategy at the moment.”
Doyle says there are a number of options Convergence could pursue when the funding structure in Elephant unwinds next year. They include raising new funding, selling some of the shares to settle debt, or rolling the funding over.
He says Convergence has had “a couple of interactions” with Telkom, though serious discussions haven’t started yet. “I expect the momentum will start picking up.”
The big question is whether the Jacob Zuma administration will tolerate an Ngcaba-led company having a bigger say over strategy at Telkom. Government holds 39% of Telkom.
ANC alliance partners Cosatu and the SA Communist Party believe the Telkom transaction enriched allies of former President Thabo Mbeki. Indeed, Mbeki ally Smuts Ngonyama helped broker a toenadering between the Lion and Leopard consortia, bringing the two sides together to form Elephant.
Doyle doesn’t believe politics will come into the equation, though. He says Ngcaba is a long-standing member of the ANC and his appointment as director-general in the department of communications was done under the Nelson Mandela administration.
“If anything, he was a Mandela guy,” Doyle says. “We don’t have any sense that he is treated any differently now to how he was treated before.”
Another question that will be raised is Ngcaba’s role at Dimension Data, one of Telkom’s biggest competitors. If Convergence Partners were to become more actively involved at Telkom, how would this affect his position at Didata?
Doyle says it’s not something Convergence Partners has addressed yet, but it is something that it will take into cognisance. “There will be Chinese walls between the representatives of each company,” he says.
TechCentral calculates that Ngcaba indirectly holds 1,5% of Telkom’s equity, worth about R350m — before debt in the structure is taken into account. Following Telkom’s unbundling of its stake in Vodacom, Elephant also holds about 2,5% of the cellular operator’s shares. Ngcaba indirectly holds shares worth about R440m in Vodacom.
But Doyle says people always forget the debt in the structure when trying to calculate the value of the Elephant Consortium’s stake in Telkom.
“Elephant’s shareholding in Telkom and Vodacom is worth about R3,5bn,” Doyle says. “But the gearing, before Elephant gets anything out, is about R3bn.” — Duncan McLeod, TechCentral
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