State got zero in taxes from Telkom deal
From left: Then ICT Cabinet Secretary Joe Mucheru, his National Treasury counterpart Henry Rotich and Helios Investment principal partner Pierre Heinrich during the sale of Telkom Kenya shares held by Orange East Africa to Jamhuri Holdings Limited at Treasury buildings in Nairobi in mid-June 2016.
Members of Parliament were yesterday told how the government got nothing in form of taxes from the Sh6.2 billion it paid to acquire Telkom Kenya from Helios Investors LLP and Jamhuri Holdings Limited.
This came even as the local ownership of Jamhuri Holdings Limited remained shrouded in mystery.
The revelations were made during a joint sitting of the National Assembly Committees on Finance and National Planning and Communication, Innovation and Information that is investigating the acquisition of the telco.
Mr Paul Cummingharm, a British national, who appeared before the joint inquiry of the two committees yesterday, only introduced himself as the senior chief finance officer at Helios Investors LLP and a director at Jamhuri Holdings Limited.
He claimed he didn’t know the local directors of Jamhuri Holdings. He cited frustrations by the Kenyan government as the reasons for ditching Telkom Kenya but could not tell the MPs who negotiated on behalf of the government in the deal because he was not involved.
Mr Cummingharm said that, of the Sh6.2 billion the government paid, $4.5 million (about Sh600 million) went to the transactional advisors who helped in the negotiations and the lawyers.
Adil Trustees
An amount he did not disclose also went to the top management and staff of Telkom Kenya in the name of Adil Trustees.
“The shareholders never claimed any dividend for their shares as a result of the transaction. There were no capital gain taxes to the government. We considered this as a gift to the government,” Mr Cummingharm, who has been with Helios since 2008, said. He listed Standard Chartered Bank, Stanbic Bank and businessman and banker John Ngumi as the transactional advisors in the deal.
“We dealt with Mr Ngumi as an individual, not as a director of Africa Capital Partners on multiple transactions not just in the Telkom sale,” he said.
Mr Cummingharm’s appearance before the committees yesterday was his first time in the country after 32 years but he could not tell the MPs how he became a director at Jamhuri Holdings Limited, whose name ‘Jamhuri’ has links to the Kiswahili language that is spoken in the East African region.
Mr Cummingharm told the MPs that the frustrations they went through at the hands of the government were the reason why they decided to sell Telkom Kenya. He cited the failure of the government to institute regulatory interventions necessary to “remedy” the structural imbalances in the telecommunications business environment that “continue to make the sector less competitive much to the disadvantage of the rest of” the operators and consumers.
The other reason was the failure of the government to approve the joint venture between Telkom and Airtel Kenya that would have involved the combination of the two companies’ telecommunications business.
Helios was also “frustrated” by a decision by the Ministry of Sports, Culture and Heritage to “occupy and proceed” to construct sporting facilities on a Sh10 billion piece of land on Ngong Road, Nairobi, of which “Telkom is the legally registered owner”.
“We were well placed to make Telkom a number one player in the industry but we did not get the support we had been promised by the government. We came to the conclusion that our investment had run its course and in July 2021, we approached the government to exit and it accepted,” said Mr Cummingharm.
Conditions
But before the investors exited the telco, they gave conditions including that the government should acquire Helios’ 60 per cent shareholding in Telkom for “a nominal $1” to increase the government’s shareholding to 100 per cent.
Helios also wanted the government to take over and reimburse the shareholder loan injected by Helios amounting to $51.2 million — $48.2 million as principal and $3 million in accrued interest, translating to about Sh6.2 billion. In turn, Helios was ready to forgo the acquired shareholder loan that it took over from Orange Telkom of $239 million with $199 million as principal and $40 million in interest.
Telkom Kenya was part of the Kenya Posts and Telecommunications Corporations, which was the sole provider of postal and telecommunication services in the country. It was established as a telecommunications operator in 1999. In 2007, Telkom Kenya was privatised when the government sold 51 per cent of its shares to Orange East Africa Limited (OrSEA), a subsidiary of France Telecom SA (FT) at $390 million.
However, the company did not achieve sufficient revenues despite OrSEA’s investments and continued to post losses.
The government’s shareholding would reduce to 30 per cent due to its failure to participate fully in the restructuring that followed, involving debt write-offs and injection of equity capital.
In June 2016, Helios acquired 70 per cent of the Telkom shares from OrSEA through a special purpose vehicle — Jamhuri Holdings Limited. It was at this point that the Kenyan government increased its shareholding from 30 per cent to 40 per cent for a nominal consideration.
