Government Got Zero in Taxes from Telkom Deal

This occurred despite the fact that Jamhuri Holdings Limited’s local control remained a mystery.

The information was revealed at a combined meeting of the committees on finance, national planning, communication, innovation, and information of the National Assembly, which is looking into the purchase of the telco.

The British national Mr. Paul Cummingharm, who yesterday testified before the two committees’ joint investigation, only identified himself as the senior chief financial officer at Helios Investors LLP and a director at Jamhuri Holdings Limited.

He asserted that he was unfamiliar with Jamhuri Holdings’ regional executives. He gave the Kenyan government’s frustrations as the reason for leaving Telkom Kenya, but since he was not engaged in the negotiations, he was unable to inform the MPs who represented the government in the deal.

According to Mr. Cummingharm, the government paid Sh6.2 billion, of which $4.5 million (or about Sh600 million) went to the lawyers and transactional advisers who assisted in the negotiations.

An amount he did not disclose also went to the top management and staff of Telkom Kenya in the name of Adil Trustees.

“The shareholders never claimed any dividend for their shares as a result of the transaction. There were no capital gain taxes to the government. We considered this as a gift to the government,” Mr. Cummingharm, who has been with Helios since 2008, said. He listed Standard Chartered Bank, Stanbic Bank, and businessman and banker John Ngumi as the transactional advisors in the deal.

“We dealt with Mr. Ngumi as an individual, not as a director of Africa Capital Partners on multiple transactions not just in the Telkom sale,” he said.

After 32 years, Mr. Cummingharm appeared before the committees for the first time yesterday, but he was unable to explain to the MPs how he came to be a director at Jamhuri Holdings Limited, a company whose name is derived from the Kiswahili language, which is spoken in East Africa.

Mr. Cummingharm explained to the MPs that they chose to sell Telkom Kenya because of their frustrations with the government. He mentioned how the government had failed to implement the regulatory changes required to “remedy” the structural imbalances in the telecommunications industry that “continue to make the sector less competitive much to the disadvantage of the rest” of the operators and customers.

The other reason was the failure of the government to approve the joint venture between Telkom and Airtel Kenya that would have involved the combination of the two companies’ telecommunications business.

The Ministry of Sports, Culture, and Heritage’s decision to “occupy and proceed” with plans to build sporting facilities on an Sh10 billion plot of land on Ngong Road in Nairobi, of which “Telkom is the legally registered owner,” also “frustrated” Helios.

“We were well placed to make Telkom a number one player in the industry but we did not get the support we had been promised by the government. We came to the conclusion that our investment had run its course and in July 2021, we approached the government to exit and it accepted,” said Mr. Cummingharm.

But before the investors left the telco, they stipulated terms, one of which was that the government should buy Helios’ 60% stake in Telkom for “a nominal $1” in order to expand its ownership to 100%.

In addition, Helios requested that the government assume responsibility for and reimburse it for the $51.2 million shareholder debt that it provided—$48.2 million in principal and $3 million in interest—which is equivalent to about Sh6.2 billion. In response, Helios was prepared to forego the acquired shareholder debt of $239 million, consisting of $199 million in principal and $40 million in interest, which it had acquired from Orange Telkom.

The primary provider of postal and telecommunication services in the country was the Kenya Posts and Telecommunications Corporations, which included Telkom Kenya. It began operating as a telco provider in 1999. The government privatized Telkom Kenya in 2007 when it paid $390 million for 51% of its shares from Orange East Africa Limited (OrSEA), a France Telecom SA (FT) affiliate.

OrSEA invested, but the company continued to lose money because it did not generate enough income.

The government’s ownership would drop to 30% as a result of its partial absence from the ensuing restructuring, which involved debt write-offs and the addition of private capital.

In June 2016, Helios purchased 70% of the Telkom shares from OrSEA using Jamhuri Holdings Limited, a special purpose company. At this time, for a small fee, the Kenyan government increased its ownership of the company from 30% to 40%.