South Africa: Long-delayed Telkom IPO finally makes it to market

Global Finance, Apr 2003 by Platt, Gordon

Telkom, South Africa's state-controlled telephone and wireless operator, listed its shares on the Johannesburg and New York stock exchanges on March 4.

The long-delayed partial privatization included an unusual pricing scheme. Members of a group of South Africans classified as `historically disadvantaged individuals' were offered a 20% discount to the offering price on the shares. The discount, known as the Khulisa offer, was made available to those individuals who were denied the right to vote or otherwise discriminated against under apartheid. In addition, if these individuals hold on to their shares for two years, they will qualify for a loyalty bonus of one extra Telkom share for every five shares they own. All other South African citizens were allowed to buy shares at a 5% discount to the offering price.

The IPO by South Africa's ANC-led government sent a message to investors that the country is committed to free-market policies, according to public enterprises minister Jeff Radebe. He traveled to New York to ring the opening bell at the New York Stock Exchange. Telkom already was 30% jointly owned by SBC Telecom of the US and Telekom Malaysia.

Telkom's American depositary receipts were listed at $13.98 and closed the first week of trading at $14.09 after dipping to $13.90 in their debut. One ADR is equivalent to four ordinary shares. Bank of New York was selected as depositary for the ADR program.

According to Telkom's prospectus, the company is the largest communications provider in Africa based on operating revenue and assets. Telkom owns 50% of Vodacom, South Africa's largest mobile telephone network, with 7 million subscribers. UK-based Vodafone owns 32% of Vodacom.

The Telkom offering was one of the few IPOs to make it to market in recent months, and it came at a time when telecom issues are not generally in favor with investors.The IPO raised about $500 million for the South African government, which sold 25% of Telkom's shares.

Deutsche Bank and JPMorgan Chase were underwriters for the global offering.

Minister Radebe says the government plans to sell shares in state-owned electricity utility Eskom in the near future. One goal of the privatizations is to create a new class of shareholders, he says. The Telkom listing process was accompanied by a massive public-education campaign in South Africa.