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EDITORIAL: Sipho Maseko makes a tough call on Cell C

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Telkom’s bid is good news for consumers but perhaps not for shareholders

Telkom CEO Sipho Maseko is walking a tightrope. Maseko, at the helm since 2013, is aggressively pushing Telkom’s mobile phone business deeper into a market dominated by established rivals MTN and Vodacom. But its hefty capital expenditure has jacked up debt to dangerously high levels and wiped out its cash flows.

The mobile division, written off as doomed to fail when it launched in 2010, is slowly becoming a gem, contributing more than a quarter to Telkom’s annual revenue. It is not hard to imagine that shareholders will not dispute the industrial merits of the deal, which is sold as vital for Telkom to compete with Vodacom and MTN and will boost the company’s annual ebitda by almost a third to R15bn.

Telkom will inherit a company labouring under R8.2bn debt, which is almost double Telkom’s own borrowings. That will put pressure on Telkom’s capital structure and possibly breach its own stated target of a net debt to ebitda ratio of 1.5 times.

 

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