From a review of the company's long term loans, the consultants note

----- Original Message ----- From: "Chifu" <[email protected]> To: <[email protected]> Sent: Wednesday, August 03, 2005 9:36 PM Subject: [DigAfrica] Telkom Kenya won't last 2 years? With losses upto $64.9m, firm won't last 2 years JAINDI KISERO The EastAfrican Telkom Kenya is in dire straits. That is the conclusion of PKF Consulting, which was appointed by the government in March to conduct a due diligence into the financial affairs of the troubled giant parastatal. The report, obtained exclusively by The EastAfrican, says that if Telkom were to be left in its current state, there would be adverse financial implications for both the company and the government. The consultants found that Telkom is in distress, with losses ranging from Ksh3 billion ($38.9 million) to Ksh5 billion ($64.9 million) per year. The report says that if nothing is done, the shareholders' funds will eventually read negative, rendering the company technically insolvent. It adds that the cash flow position will deteriorate, predicting that in its present state, Telkom will not be able to sustain its operations beyond two years due to operating losses, cash flow crunch and inability to borrow any further funds. Without quick action to address its problems, government guarantees may be required for the company to attract funding from the financial sector. A financial analysis of Telkom's operations conducted by the consultants showed that revenues have been on decline since the year 2001, mainly as a result of a rapid decline in the number of new landline connections, a clear sign that Telkom is losing to the two mobile phone operators. The state-owned company's problems have been compounded by the fact that its fixed costs have been increasing exponentially, mainly as a result of a bloated workforce and the costs associated with large fixed asset investments. While the company's gearing ratios (debt to total capital) have remained relatively low, averaging 11 per cent, the report by PKF says that it is only so because the company's accounts have not adequately recognised additional liabilities including stocks and debtors provisions, additional tax and pension liabilities and investment revaluation, and the continuing loss making patterns. The consultants also found that key financial ratios of the company have deteriorated, mainly because of Telkom's inability to collect debts on a timely basis, as a consequence of which the company has been experiencing difficulty in settling its short-term outstanding obligations. The company is owed hundreds of millions of shillings by some its subsidiaries. For instance, the report notes inter-company and related debtor accounts include an amount of Ksh964 million ($12.5 million) for the Gilgil Telecommunications Institute (GTI). Yet the evidence is that itself GTI is broke and relies on Telkom to finance its operational activities. The report also notes that there exists a corporate tax liability of Ksh1.6 billion ($20.7 million) on the books of Telkom relating to the defunct Kenya Posts and Telecommunications (KPTC). The consultants say the government lent Telkom $33 million in 2000 to facilitate the acquisition of the Safaricom licence, which will have to be paid within two weeks of its privatisation, according to an agreement signed with the government. that, although a "Paris Club" debt rescheduling arrangement between the company and the government was arrived at, to reschedule Telkom's long term loans where Telkom would only pay 40 per cent of the loans, the agreements have yet to be signed. Based on an actuarial valuation conducted on the scheme by Alexander Forbes as at June 30, last year, on the pension scheme for Telkom employees, the total actuarial deficit amounted to Ksh8.1 billion ($105 million) after excluding the outstanding contributions to net assets. The total pensions liability as per Telkom's balance sheet as at June 30, 2004 - excluding the impact of potential retrenchment of - staff amounts to Ksh4.2 billion ($54 million) resulting in a shortfall of Ksh3.8 billion ($49 million). In the report, PKF has proposed that a provision be made to adjust Telkom's liability to the actuarial position. The consultants also found that the Kenya Revenue Authority (KRA) had issued tax assessments for corporation tax amounting to Ksh28.2 billion (including interest and penalties amounting to Ksh20.3 billion). However, these assessments are being contested by Telkom and their tax advisers. The report says that the management of Telkom believes that there is a possibility that the government may waive the penalties. Source: East African Dig Africa site welcomes you to join us at http://www.yahoogroups.com/group/Digafrica Also if you are interested to join a Swahili/English discussion group click http://www.yahoogroups.com/group/kiswahili -------------------------------------------------------------------------------- YAHOO! GROUPS LINKS a.. Visit your group "DigAfrica" on the web. b.. To unsubscribe from this group, send an email to: [email protected] c.. Your use of Yahoo! Groups is subject to the Yahoo! Terms of Service. --------------------------------------------------------------------------------