Will SAA cut state’s Telkom line?

the level of transparency required of a listed company and the competitive market in which it operates.

“Telkom has had to struggle to survive and there is general agreement that they have done a damn good job of it,” he said.

Hartard said the current management team under chief executive Sipho Maseko and chief financial officer Deon Fredericks has overseen a turnaround that is reflected in the company’s share price. It has risen from lows of R11.93 in mid-2013 to just over R67 as of Wednesday this week.

The improvement in various valuation metrics — such as Telkom’s forward price-earnings ratio, which has risen from three in 2008 to 11 currently — is a sign the market values the company far more highly than it did five to ten years ago, Hartaard said.

With the Vodacom deal, the PIC bought the government’s stake at the market price and, if the state sells its Telkom shares to the PIC, it will still retain its ownership, albeit indirectly, she said.

“The government has had no interference in the running of Telkom’s operations and this sale would have no impact on the board composition or the day-to-day running of the company,” she added.

The PIC manages the Government Employees Pension Fund (GEPF), and it has been adamant that pensioners’ money will not be used to bail out the airline.

In a statement responding to comments made by treasury officials in Parliament in May, mooting the use of the PIC to help the airline, it was quick to assure pensioners that it would not be funding SAA.

The fund had “not received or been approached with such a proposal and no discussions have been held with GEPF on this matter”, it said.

This has not stopped the national carrier from highlighting in its annual corporate plan the possible need to raise R6-billion from the PIC.

Cull questioned whether the PIC would risk so much exposure to one share, but Hartard said it is not uncommon for the PIC to take big positions in certain cases. It has done so with other SOE debt, she argued, taking on more of their bonds as interest by private sector investors has waned.

The PIC also underwrote Lonmin’s rights issue to assist the mining company to remain a going concern and now owns 29% of it, she said.

Referring to whether the PIC would be reluctant to hold 50% of a company’s equity, she said it has taken up 79% in a small black economic empowerment hospital player, RH Bophelo, that recently listed.

As concerns about the governance of the parastatals have been compounded and the funding for them has been shrinking, more and more questions have been asked about the extent to which the PIC will be leaned on to prop them up.

But the PIC has assured GEPF fund members in recent months that all its investment decisions are taken in their best interests, and in line with the “client mandate requirements” and the risk parameters stipulated by them.

In the case of GEPF money, the “continued support of SOEs will be underpinned by those mandate requirements” and are subject to robust due diligence, it has said.

If the state does decide to sell its Telkom stake, its options could be to sell to an existing market player or to an empowerment consortium to increase black ownership in the sector.

But Cull said a sale to an incumbent operator such as Vodacom or MTN would face competition problems and, although the creation of a new empowerment entity was a possibility, there was the real challenge of “raising hard cash by a deadline”.

Telkom has a strategic role to play in the future communications network of the country, he said, and he questioned whether the state would conceivably divest from telecoms at this juncture. It would amount to “a grudge sale”, he said.

But the DA’s Alf Lees, a member of the parliamentary standing committee on finance, said “there really isn’t a choice”.

Although it may amount to throwing good money after bad, this had already happened, he said, pointing out that the government has issued R19-billion in guarantees, but this “has already been spent to fund losses”.

The PIC could lend SAA the funds necessary to keep it afloat, but this would be a very bad use of pensioners’ money, he said.

An SAA bailout is likely, although the business should then be placed into business rescue and commercially managed out of its current crisis, Lees said, adding that political interference at the airline would need to end.

Although the source of the bailout is still up for debate, the fact is that will have to be used to repay banks for money “they have already lent [SAA]”, he said.