SAG PENSION FUND PICKS UP SBC TELKOM SHARES

UNCLAS SECTION 01 OF 02 PRETORIA 005029 SIPDIS DEPT FOR AF/EPS AND AF/S/TCRAIG AND KGAITHER COMMERCE FOR 4510/ITA/IEP/ANESA/OA/JDIEMOND TREASURY FOR BRESNICK, LSTURM, AND AJEWEL DEPT PASS USTR FOR PCOLEMAN SENSITIVE E.O. 12958: N/A TAGS: ECPS ETRD ECON EINV SF SUBJECT: SAG PENSION FUND PICKS UP SBC TELKOM SHARES REFTEL: PRETORIA 4936 (U) Sensitive but unclassified. Not for Internet distribution. Please protect accordingly. ¶1. (SBU) SUMMARY. The sale of a 15.1 percent stake in Telkom took a twist when the Public Investment Commissioners (PIC) announced November 16 that they had acquired the stake for R6.6 billion ($1.1 billion). PIC CEO Brian Molefe said the Commissioners purchased the shares on behalf of an empowerment consortium ("Elephant Consortium") to allow it more time to arrange favorable financing, among other things. An Elephant Consortium shareholder told Econoff that the Consortium is in no danger of losing the shares, although the PIC may bow to public resentment over the involvement of senior ANC and former government officials in the deal and call on the Consortium to become more broad- based. After seven years, SBC walks away from South Africa with a $446 million profit. END SUMMARY. ¶2. (U) The Public Investment Commissioners (PIC) announced November 16 that they had acquired Thintana's remaining 15.1 percent Telkom stake for R6.6 billion ($1.1 billion) on behalf of the "Elephant Consortium." The PIC, which manages over R300 billion of government employee pension funds, was one of the original parties financing the purchase of the shares for the empowerment consortium. Thintana was a joint venture between U.S. telecommunications firm SBC Communications and Telkom Malaysia which at one point controlled 30 percent Telkom. ¶3. (U) CEO Brian Molefe said that the PIC would warehouse the shares for a period of not more than six months while the parties negotiated terms for the transfer of the shares to the Consortium. Molefe said the PIC agreed to purchase the shares on behalf of the Consortium for the following reasons: - Thintana's tight November 15 deadline to conclude the deal adversely affected the Consortium's ability to arrange favorable financing terms. - Thintana offered the Consortium a 15 percent discount to current market value for the shares. - Telkom's prospects to continue to deliver value to its shareholders looked promising following the release of its interim results showing a R2.8 billion profit (after tax) for the six months ended September 30, 2004. ¶4. (SBU) An Elephant consortium shareholder told Econoff that PIC officials agreed to purchase the shares after reviewing the expensive terms and debt structure of the original financing. The arrangement provides the Consortium with time to negotiate more favorable financing terms. He said that the Consortium would save R450 million ($75 million) in bank fees through this arrangement. ¶5. (SBU) The shareholder said the Consortium is in no danger of losing the shares as it is listed as the buyer of record for the transaction and has a written agreement with the PIC requiring it to deal exclusively with the Consortium for the resale of the shares. He said that the Consortium would negotiate the transfer of the shares from the PIC to the Consortium by December 15, 2004. The Consortium also holds all voting rights associated with the 15.1 percent stake. ¶6. (SBU) He did say, however, that the PIC may bow to public resentment over the involvement of senior ANC and former government officials in the deal and call on the Consortium to become more broad-based despite the inclusion of Women Investment Portfolio Holdings (Wiphold), representing over 200,000 black women. The Consortium is led by Chief Spokesman and Head of the ANC Presidency Smuts Ngonyama, former Department of Communications Director- General Andile Ngcaba, and ANC Women's League member and former Executive Director of Finance at Transnet Gloria Serobe. ¶7. (U) U.S. telecommunications firm SBC Communications invested $756.6 million in 1997 for its 18 percent stake in Telkom. In June, SBC sold half its holdings for $543 million and received $660 million (R3.96 billion) from the sale of its remaining stake this week. After seven years, SBC walks away from South Africa with a $446 million profit. FRAZER