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Cablegate: Sbc to Sell Telkom Shares, Exit South Africa

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 PRETORIA 004936

SIPDIS

DEPT FOR AF/EPS/DKRZYWDA AND AF/S/TCRAIG AND KGAITHER
COMMERCE FOR 4510/ITA/IEP/ANESA/OA/JDIEMOND
TREASURY FOR GCHRISTOPULOS, LSTURM, AND AJEWEL
DEPT PASS USTR FOR PCOLEMAN

SENSITIVE

E.O. 12958: N/A
TAGS: ECPS ETRD ECON EINV SF
SUBJECT: SBC TO SELL TELKOM SHARES, EXIT SOUTH AFRICA


(U) Sensitive but unclassified. Not for Internet
distribution. Please protect accordingly.

1. (SBU) SUMMARY. U.S. telecommunications firm SBC
Communications and Telkom Malaysia announced November 8 that
they would sell their remaining interest in Telkom SA and
exit South Africa. An empowerment consortium led by senior
ANC officials and influential empowerment figures (Andile
Ngcaba, Smuts Ngonyama, and Gloria Serobe) will acquire the
shares no later than November 15 pending agreement of a
purchase price. A source close to the deal said that
Ngcaba, former Department of Communications Director-
General, is conspiring to become CEO of Telkom. While
industry analysts say that the deal will raise Telkom's
black economic empowerment (BEE) profile, critics complain
that it will benefit only a small, black elite. END
SUMMARY.

2. (U) U.S. telecommunications firm SBC Communications and
Telkom Malaysia announced November 8 that they would sell
their remaining interest in Telkom SA, ending months of
speculation. SBC and Telkom Malaysia hold 15.1 percent of
Telkom SA through their Thintana Communications joint
venture. SBC controls 60 percent of Thintana while Telkom
Malaysia owns 40 percent.

3. (SBU) In June, Thintana reduced its Telkom holdings from
30 to 15.1 percent and agreed to retain its remaining stake
until the November quarterly reports. SBC recouped $543
million from the June sale, almost 72 percent of its
investment of $756.6 million in 1997. Privately, SBC
officials told Econoff that they were "very pleased" with
the results of the June sale and said it bode well for SBC's
eventual disinvestment from Telkom. They also indicated at
the time that corporate policy to reduce overseas holdings
would likely lead to SBC's complete divestment from South
Africa this year.

4. (SBU) Since that time, Thintana has been quietly
negotiating with a consortium of empowerment groups led by
senior ANC officials and influential empowerment figures. A
group shareholder told Econoff that the consortium dubbed
"Project Elephant" consists of a group known as "Project
Lion" led by former Department of Communications Director-
General Andile Ngcaba and another group of investors called
"Project Buffalo" headed by ANC spokesman Smuts Ngonyama and
ANC Women's League member Gloria Serobe.

5. (SBU) Consortium and SBC officials were in Dallas
negotiating terms of the deal when the Minister of
Communications announced on September 2 that the industry
would be liberalized in February 2005. Telkom stock prices
tumbled to R72 (NYSE $47.80). Anticipating that Telkom
prices would rise again, the consortium shareholder said
that he then encouraged consortium officials to lock in a
purchase price at R75 per share, but was rebuffed. The
consortium now faces stock prices of more than R93 (NYSE
$56.74). The sale is contingent upon the consortium
finalizing a purchase price by November 15. Otherwise,
Thintana will sell its shares on the open market beginning
November 16.

6. (SBU) Under terms of the deal, the consortium will
acquire the special class B ordinary share in Telkom held by
Thintana which will give it certain rights as a strategic
equity investor, including potential seats on the Board of
Directors and senior executive positions. Although Telkom
has the right of first refusal on the shares, a Department
of Communications source told Econoff that it is a virtual
surety that Government will not exercise that right. A
source close to the deal told Econoff that Andile Ngcaba is
conspiring to lead Telkom and has a strategy in place to use
this acquisition as a springboard to replace current Telkom
CEO Sizwe Nxasana.

7. (U) While industry analysts say that the deal will raise
Telkom's black economic empowerment (BEE) profile, critics
complain that it will benefit only a small, black elite. A
front-page editorial in Business Day's November 10 edition
criticized the deal, calling it "an insult to the poor." It
slammed President Mbeki, Finance Minister Manuel and Public
Enterprises Minister Erwin for not seizing this opportunity
to redistribute the wealth of Telkom to South Africa's poor.

FRAZER

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