Global Insight Perspective | |
Significance | Parliament has reportedly agreed to a "slightly modified" version of the original sale agreement, with the 230-seat National Assembly voting in favour of the deal with 124 votes for and 74 votes against. |
Implications | With an enterprise value of US$1.3 billion, the privatisation of Ghana Telecom will see the second-highest enterprise value of a PTO in sub-Saharan Africa after Telkom South Africa, and is greater than the market has determined for NITEL (US$980 million), Telkom Kenya (US$764.7 million) and Gabon Telecom (US$155.7 million). |
Outlook | The vote should bring formal closure to the opposition's objections to the sale, but with elections due in December 2008 and the most extreme opposition threats to "renationalise GT when they win the presidency", Vodafone will inevitably await the outcome of the election keenly. |
Path to Privatisation
Following the first privatisation of Ghana Telecom (GT) to Telekom Malaysia in 1997, the government bought the initial stake back and reopened the privatisation process in April 2007. Of the original 20 applicants, six companies were short-listed to bid—Etisalat, Belgian Telecom, Singapore Telecom, Portugal Telecom, Vodacom, and France Telecom (see Ghana: 8 October 2007: Twenty Groups Express Interest in Ghana Telecom Privatisation). Subsequently, the latter three were invited to negotiate with the government in a final selection stage and it seemed in November 2007 that France Telecom would emerge as the preferred bidder, but in January 2008 the government suspended the process, saying that the bids undervalued its assets, including the reported US$520-million offer made by France Telecom (see Ghana: 19 February 2008: Government Suspends Ghana Telecom Shares Sale).
On 3 July 2008, Vodafone announced that Vodafone International Holdings, a wholly-owned subsidiary of the Vodafone Group, had agreed to acquire a 70% stake in GT for US$900 million on a debt-free, cash-free basis, implying a total enterprise value for GT of approximately US$1.3 billion. The government would retain a 30% stake in the operator. The transaction remained subject to certain closing conditions, including approval from the Ghanaian parliament, and included a number of key assets, such as mobile operator One Touch and ownership of exclusive rights of access to the Sat-3/WASC submarine cable from Ghana. GT owns One Touch, which had 1.4 million subscribers by 31 March 2008 and a market share of 17% out of a total Ghanaian market of 7,604,053 mobile subscribers by 31 December 2007. Vodafone also confirmed that as part of the transaction price of US$900 million, it was "agreed that the government of Ghana’s fibre network assets will be transferred to Ghana Telecom". The government is currently building a 4,000-kilometre national fibre backbone at a reported cost of US$250 million (see Ghana: 18 May 2007: Ghana Launches National Fibre Backbone Project).
However, for several reasons, including claims that the offer undervalued GT, the transaction faced criticism from opposition parties and was subsequently taken up by a joint parliamentary committee, before the decision was postponed after parliament was adjourned for summer recess on 18 July (see Ghana: 4 July 2008: Vodafone Acquires 70% of Ghana Telecom for US$900 mil.).
In order to bring closure, parliament was recalled from its summer recess to vote on the privatisation yesterday (14 August). According to Reuters, the 230-seat National Assembly voted in favour of the deal with 124 votes for and 74 votes against. Not all parliamentarians were present for the vote, but even if all the absentees were considered and voted against, there would still be a majority in favour.
Outlook and Implications
The opposition's concern that Vodafone's offer of US$900 million undervalues the operator is surely way off target. GT reported an annual turnover of US$290 million in the year ending 31 December 2007 and with a valuation of US$1.3 billion, which sets an enterprise value at 4.5 times annual revenues. GT has reportedly accrued debts of some US$400 million, according to Reuters, and the opposition spokesman on communications said that the sale agreement committed the government to making payments of some US$300 million. However, in August 2005 independent valuers KPMG Forensic judged that the fair market value for Telekom Malaysia’s 30% stake in GT (see below) was US$52.2 million, which would imply an enterprise value of US$174 million. The valuation of US$1.3 billion implied by the Vodafone offer is over 10 times what it was three years ago, and presumably accommodates items such as the government’s investment in the fibre-optic backbone.
By way of comparison, the offer made for GT towers above that made for other African PTOs that have recently been privatised.
- NITEL (Nigeria): In July 2006, Transcorp made a bid of US$750 million for a 75% stake and finally paid US$500 million for a 51% stake, implying an enterprise value of US$980 million (see Nigeria: 15 November 2006: Transcorp Takes Formal Ownership of NITEL).
- Telkom Kenya: In November 2007, France Telecom won a 51% stake in Telkom Kenya for US$390 million, implying an enterprise value of US$764.7 million (see Kenya: 16 November 2007: France Telecom Consortium Wins 51% Stake in Telkom Kenya).
- RwandaTel (Rwanda): In November 2007, LAP Green Com won an 80% stake in RwandaTel with a bid of US$100 million, implying an enterprise value of US$125 million (see Rwanda: 15 October 2007: LAP Green Com Wins 80% Stake in RwandaTel).
- Gabon Telecom: In February 2007, Maroc Telecom won a 51% stake in Gabon Telecom for 61 million euro (US$79.4 million), implying an enterprise value of US$155.7 million (see Gabon: 12 February 2007: Maroc Telecom Wins 51% Stake in Gabon Telecom).
- Westel (Ghana): In October 2007, Celtel—part of the Zain Group—won a controlling 75% stake in second national operator Westel for US$120 million, implying an enterprise value of US$160 million (see Ghana: 24 October 2007: Celtel Takes 75% Stake in Westel).
A key doubt will surely remain, with investors keenly awaiting the outcome of the election at the end of the year. With the presidential and parliamentary elections due in December, the opposition National Democratic Congress (NDC) and Convention Peoples Party (CPP) have raised a number of criticisms, including an apparent lack of transparency and a low sale price that undervalues GT’s assets. The opposition appears committed to ensuring that the deal does not go ahead, shown in a recent demonstration held outside parliament, and the possibility of legal action has also been raised from several quarters (see Ghana: 1 August 2008: Ghana Telecom's Privatisation Faces Legal Challenge). The Public Agenda newspaper has reported that "both parties have stated they would renationalise GT when they win the presidency". It is critical to judge the degree to which such statements are merely rhetoric or whether they have real substance to them. With this political backdrop in mind, it may be no bad thing if the transaction was delayed for several months by due diligence proceedings or legal action, which would at least explore and finally lay to rest opposition objections to the sale.
This threat must be taken seriously, especially in light of previous privatization attempts. When Ghana Telecom was first privatised in 1997, a 30% stake was sold for US$38 million to G-Com Ltd, a consortium led by Telekom Malaysia. In June 2000, Telekom Malaysia agreed to increase its stake in Ghana Telecom from 30% to 45% through G-Com. Telekom Malaysia was to purchase the shares for US$100 million, and the operator paid a deposit of US$50 million. However, the transaction ran aground following the election of that year, and the new government of President John Kufuor stipulated that Telekom Malaysia would not acquire the additional 15% stake and that the technical and consultancy services agreement giving Telekom Malaysia management of GT, which expired on 19 February 2002, would not be renewed. There followed a protracted exit by Telekom Malaysia, which sought to sell the 30% stake back to the government and recover the deposit of US$50 million it had made. The two sides filed for international arbitration in February 2003 and in 2005, following the valuation made by KPMG Forensic, the government agreed to buy back the stake for an undisclosed sum of at least US$50 million.