US embassy cable - 04PRETORIA5029

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