Leo makes last ditch court appeal to save merger and avoid liquidation

23 Aug 2012

The owners of Namibia’s second largest mobile operator Powercom (Leo) have brought an urgent case to the High Court in an attempt to clear the struggling cellco’s proposed merger with state-owned incumbent Telecom Namibia. If the appeal fails, the investors say Leo – which is currently incurring monthly losses of between NAD2 million and NAD5 million (USD240,000-USD600,000) – will be liquidated at the end of August. The Namibian newspaper reports that Guinea Fowl Investments (GFI), the joint holding venture between Leo’s two shareholders Investec Bank and Nedbank, has filed an application against the ruling of the Communications Regulatory Authority of Namibia (CRAN) regarding its NAD242 million proposed takeover by Telecom Namibia. CRAN said in June that it could only approve the merger if private shareholders are allowed to purchase 25% or more of Telecom Namibia, which would require amendments to the Post and Telecommunications Establishment Act. In its written arguments to the High Court, GFI said that this decision was impossible to comply with, and declared that if the court did not scrap CRAN’s conditions to the merger and order the watchdog to reevaluate its decision, then GFI will liquidate Powercom (Leo) at the end of this month with the loss of 116 permanent and 35 temporary jobs.

The newspaper report continues that CRAN replied to the legal appeal by arguing that GFI had taken control of Powercom (Leo) with full knowledge that it was a loss-making enterprise, and that the regulator has no obligation to keep Leo in business. CRAN added that Nedbank and Investec ‘sought to relieve themselves of the financial burden’ by transferring control to Telecom Namibia in a proposed NAD242 million transaction, of which NAD240 million was accounted for by outstanding debt to be transferred to Telecom Namibia. The watchdog alleged that the deal ‘merely shifts control of the failing firm from the private sector to a wholly-owned public company’, which would require investment of taxpayers’ money to ‘acquire private sector losses’. The case continues.

According to TeleGeography’s GlobalComms Database, CRAN’s board on 7 June 2012 decided that the transfer of Leo to Telecom Namibia is subject to a legislative amendment to the Post and Telecommunications Companies Establishment Act of 1992, which makes way for a partial privatisation of Telecom via which not less than 25% of shares must be sold. The regulator has, in principle, conditionally approved the transfer of Leo’s telecoms service licence, network/services and spectrum usage licences to Telecom, but no action has yet been implemented to make the necessary legal amendments to clear the merger under CRAN’s condition – in effect, a catch-22 situation. GlobalComms clarifies that in June 2011 Telecel Globe agreed to sell Powercom (operating as Leo) to UK-registered, southern African investment fund Investec Asset Management and South African banking group Nedbank Group in a cashless deal involving the transfer of the cellco’s USD60 million of debt. In December 2011 Telecom Namibia agreed to purchase 100% of Powercom (Leo), and in May 2012 the Namibia Competition Commission (NaCC) gave its conditional approval to the takeover, provided that the shareholding structure of Telecom Namibia and the country’s mobile market leader Mobile Telecommunications (MTC) be made ‘separate and independent’ within two years (by 24 April 2014). As it stands, the state investment holding company Namibia Post and Telecommunications Holdings (NPTH) owns 100% of Telecom Namibia and a 66% stake in MTC; if the takeover of Leo went ahead with existing ownership structures, the government would effectively control the entire mobile sector (in which Telecom is a distant third place).