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Cablegate: Sag Pension Fund Picks Up Sbc Telkom Shares

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 005029

SIPDIS

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

SENSITIVE

E.O. 12958: N/A
TAGS: ECPS ETRD ECON EINV SF
SUBJECT: SAG PENSION FUND PICKS UP SBC TELKOM SHARES

REFTEL: PRETORIA 4936

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

1. (SBU) SUMMARY. The sale of a 15.1 percent stake in
Telkom took a twist when the Public Investment Commissioners
(PIC) announced November 16 that they had acquired the stake
for R6.6 billion ($1.1 billion). PIC CEO Brian Molefe said
the Commissioners purchased the shares on behalf of an
empowerment consortium ("Elephant Consortium") to allow it
more time to arrange favorable financing, among other
things. An Elephant Consortium shareholder told Econoff
that the Consortium is in no danger of losing the shares,
although the PIC may bow to public resentment over the
involvement of senior ANC and former government officials in
the deal and call on the Consortium to become more broad-
based. After seven years, SBC walks away from South Africa
with a $446 million profit. END SUMMARY.

2. (U) The Public Investment Commissioners (PIC) announced
November 16 that they had acquired Thintana's remaining 15.1
percent Telkom stake for R6.6 billion ($1.1 billion) on
behalf of the "Elephant Consortium." The PIC, which manages
over R300 billion of government employee pension funds, was
one of the original parties financing the purchase of the
shares for the empowerment consortium. Thintana was a joint
venture between U.S. telecommunications firm SBC
Communications and Telkom Malaysia which at one point
controlled 30 percent Telkom.

3. (U) CEO Brian Molefe said that the PIC would warehouse
the shares for a period of not more than six months while
the parties negotiated terms for the transfer of the shares
to the Consortium. Molefe said the PIC agreed to purchase
the shares on behalf of the Consortium for the following
reasons:

- Thintana's tight November 15 deadline to conclude the deal
adversely affected the Consortium's ability to arrange
favorable financing terms.

- Thintana offered the Consortium a 15 percent discount to
current market value for the shares.

- Telkom's prospects to continue to deliver value to its
shareholders looked promising following the release of its
interim results showing a R2.8 billion profit (after tax)
for the six months ended September 30, 2004.

4. (SBU) An Elephant consortium shareholder told Econoff
that PIC officials agreed to purchase the shares after
reviewing the expensive terms and debt structure of the
original financing. The arrangement provides the Consortium
with time to negotiate more favorable financing terms. He
said that the Consortium would save R450 million ($75
million) in bank fees through this arrangement.

5. (SBU) The shareholder said the Consortium is in no
danger of losing the shares as it is listed as the buyer of
record for the transaction and has a written agreement with
the PIC requiring it to deal exclusively with the Consortium
for the resale of the shares. He said that the Consortium
would negotiate the transfer of the shares from the PIC to
the Consortium by December 15, 2004. The Consortium also
holds all voting rights associated with the 15.1 percent
stake.

6. (SBU) He did say, however, that the PIC may bow to
public resentment over the involvement of senior ANC and
former government officials in the deal and call on the
Consortium to become more broad-based despite the inclusion
of Women Investment Portfolio Holdings (Wiphold),
representing over 200,000 black women. The Consortium is
led by Chief Spokesman and Head of the ANC Presidency Smuts
Ngonyama, former Department of Communications Director-
General Andile Ngcaba, and ANC Women's League member and
former Executive Director of Finance at Transnet Gloria
Serobe.

7. (U) U.S. telecommunications firm SBC Communications
invested $756.6 million in 1997 for its 18 percent stake in
Telkom. In June, SBC sold half its holdings for $543
million and received $660 million (R3.96 billion) from the
sale of its remaining stake this week. After seven years,
SBC walks away from South Africa with a $446 million profit.
FRAZER

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