South African telco Telkom SA has made its debut on the Johannesburg and New York Stock Exchanges, but difficult trading conditions meant the government was forced to cut the price of the shares at the last minute to ZAR28 and as a result will net just ZAR3.9 billion, less than half the ZAR10 billion it had expected to receive twelve months ago. The deal gives Telkom a market capitalisation of ZAR15.6 billion, a far cry from the ZAR100 billion it was valued at a few years ago. The South African government had initially hoped to realise between ZAR33.50 and ZAR40.9 a share for Telkom, but was forced to slash the price in order to ensure that the sale was fully subscribed. 139.3 million shares were on offer, equating to 25% of the company; more than 127.2 million went to institutional and retail investors in the US, and to other institutional investors in South Africa and abroad. At home the remaining twelve million shares went to retail investors. Through the local offering the government attempted to broaden share ownership amongst the black majority by offering them up to a 20% discount on the shares.
Telkom is Africa’s largest communications service provider in terms of revenue, generating sales of ZAR34.2 billion in the year ending 31 March 2002 and recording a net profit of ZAR1.2 billion. The company is currently the only provider of fixed line voice telephony services, thanks to the government’s liberalisation programme which has been beset by delays. The real jewel in Telkom’s crown, however, is its 50% stake in Vodacom, the continent’s largest cellco with 7.7 million customers at the end of September 2002, giving it a market share of 60%. Indeed analysts have valued Vodacom at ZAR30 billion, making Telkom’s half share worth ZAR15 billion, not far off the total valuation of the company. As Reuters quotes one fund manager, by investing in Telkom’s listing they are effectively ‘getting Telkom’s fixed line business for free’.