Global Insight Perspective | |
Significance | Tata Communications has acquired the 30% stake in Neotel previously held by the South African government through Eskom and Transnet. |
Implications | Tata Communications, in association with its subsidiary Tata Africa Holdings, now holds a controlling 56% stake in the operator. |
Outlook | Tata said that the acquisition reaffirms its commitment to expansion and its investment plans in the emerging regions of Asia, Africa and the Middle East. |
Tata Communications entered into an agreement with the South African government in June 2008 to acquire the 30% stake in Neotel held by the two state-owned enterprises, Eskom and Transnet, according to the Business Day. No financial details of the transaction are available.
VSNL, the international long-distance carrier owned by Tata Communications, acquired a 26% strategic equity partner (SEP) stake in the South African SNO during 2005. VSNL/Tata Africa Holding took a controlling 51% stake in a newly created company, SEPco, which in turn controlled a 51% stake in the SNO, giving it a 26% equity stake (see South Africa: 14 February 2005: South African Government Awards SNO Stake to Tata Group). Through this structure, VSNL/Tata Africa Holdings took control of the SEPco board, which in turn had a controlling interest in the SNO's board.
Revised Shareholding Structure of SNO (February 2005) | ||
Stake | Shareholder | |
30% | Transtel (Transnet) | |
Esi-Tel (Eskom) | ||
19% | Nexus Connexion | |
51% | SEPco | 24.5% - CommuniTel |
24.5% - Two Consortium | ||
51% - Tata Africa Holding/VSNL | ||
With the exit of Transnet and Eskom, the remaining shareholders in Neotel are Nexus Connexion (19%), Communitel (12.5%) and Two Telecom Consortium (12.5%). Nexus Connexion is a black economic empowerment group, Communitel is owned by the Mkhonto We Sizwe Military Veterans Association (MKMVA) and Telecom Namibia, while the Two Telecom Consortium is comprised of a group of local investors.
Outlook and Implications
The inclusion of global telecoms operator Tata Communications as the SEP in Neotel has proved invaluable in providing the operator with the muscle needed to enter the South African market in competition to the very strong incumbent, Telkom. “This transaction further allows Neotel to leverage on Tata Communications’ proven and vast global network,” said Ajay Pandey, the chief executive officer of Neotel, in a company press release. For example, Tata Communications established a multi-service point of presence in Johannesburg in association with Neotel last year, offering MPLS, Ethernet, IP and international private leased circuit (IPLC) services connecting to Tata’s global network (see South Africa: 11 June 2008: Tata Establishes POP in Johannesburg). This move notably followed after Neotel secured direct access to the landing points of the Sat-3 and SAFE submarine cables in order to directly access capacity on the cables owned by Tata (see South Africa: 14 April 2008: Neotel Gains Direct Access to Sat-3 and SAFE Submarine Cables).
Neotel has confirmed the transaction, saying that the move will also reinforce investor confidence in South Africa. “With the current economic climate in South Africa, it is very encouraging to us that a global telecommunications giant continues to invest in South Africa and Neotel in particular” said Pandey. ”I firmly believe that such transactions reinforce international investors’ confidence in the country and more specifically in the South African telecommunications market. Neotel’s entry into the market and recent success is a clear indication of the growth potential in the industry.”