Telkom fights Ramaphosa over corruption investigation

Telkom is in a legal battle with the government after President Cyril Ramaphosa gave the Special Investigative Unit (SIU) authority to investigate Telkom for corruption.

Rampahosa issued a proclamation in 2022, ordering the Special Investigating Unit (SIU) to investigate Telkom’s dealings in Africa, focussing on its Nigerian Multi-Links operation.

The president referred dodgy deals to the anti-corruption watchdog, including Telkom’s sale of its Nigerian Multi-Links operation in 2011 and the disposal of iWayAfrica and Africa Online Mauritius in 2013.

The SIU had to look back at least as far as 2006 and investigate everything from organised corruption to misconduct by individuals that may have been improper.

To understand the backstory, you need to turn back the clock to May 2007 when Telkom bought 75% of Multi-Links, with net assets of R338 million, for $280 million (R2.1 billion).

Two years later, Telkom bought the rest of the shares for $130 million, which valued Multi-Links at over $500 million.

Former Telkom CEO Reuben September said at the time that the transaction advances Telkom’s goal of becoming Africa’s leading ICT solutions provider.

However, only a year later, Telkom had to write Multi-Links to a book value of zero at a cost of R5.2 billion. This follows Multilinks’ R1.76 billion loss from the previous financial year.

Two years later, Telkom sold Multi-Links for only $10 million. Simply put, Multi-Links was such a mess and loss leader that Telkom basically gave it away.

Around the same time as the Multi-Links deals, Telkom bought MWeb Africa and combined it with its related business Africa Online. This saw the creation of iWayAfrica, intended to be the company’s Pan-African business.

Telkom had paid R624 million for MWeb Africa and R150 million for Africa Online. However, it struggled to drive growth and profitability in the iWayAfrica business.

By the time it was sold in late 2013, it was an “immaterial part” of Telkom, the company’s CEO at the time, Sipho Maseko, said, having racked up huge losses.

There were numerous reports about corruption and kickbacks related to Telkom’s dealings in Africa, which cost some executives their jobs.

Telecom analysts said investing in Multi-Links was a poor decision, and some serious questions should be asked about corporate governance.

One analyst said Telkom had “completely misjudged the market in Nigeria”, and Telkom’s decision to purchase the remaining 25% of Multilinks in January 2009 for $130 million was perplexing.

Analysts have consistently said that Telkom severely overpaid for the stake. The purchase price was more than three times the $44 million price tag recommended to Telkom by KPMG.

Telkom fights corruption investigation

Considering the allegations of corruption and poor corporate governance, it is not surprising that Ramaphosa launched a probe into Telkom’s African dealings.

However, Telkom was not keen for the SIU to delve into its Multi-Links and iWayAfrica deals.

In July 2022, Telkom took the matter to the Pretoria High Court, asking for the investigation to be declared unconstitutional and invalid.

Telkom argued that the President acted outside his powers as Telkom is not a state institution under the SIU Act.

This was despite its official title, Telkom SA SOC Limited, which means that the company is a “state-owned company” (SOC).

Last month, the Pretoria High Court declared the proclamation unconstitutional, invalid and of no force or effect. It also awarded costs to Telkom.

Telkom said it had taken the appropriate remedial action following its previous investigations into issues raised in the proclamation, such as launching appropriate legal proceedings where necessary.

“Telkom remains committed to following robust corporate governance principles and will continue to uphold these principles,” the company said.

However, the SIU recently filed papers to apply for leave to appeal the high court’s decision.

The SIU said the court needs to give a fuller picture of what constitutes a state institution, as this can set a legal precedent on which institutions the SIU can exercise its powers.

The SIU had to look back at least as far as 2006 and investigate everything from organised corruption to misconduct by individuals that may simply have been improper.

Specifically, the SIU was told to investigate “advisory services in respect of the broadband and mobile strategy of Telkom” and whether the company followed proper procedures when it bought such advice and paid fairly. 

In addition, the SIU had to look at two disposals – Multi-Links and iWayAfrica and Africa Online Mauritius.

However, Telkom opposed this investigation and took the matter to the North Gauteng High Court, which agreed with the telecom company.

The court set aside the President’s proclamation, citing various reasons for why the order was inappropriate and unlawful.

However, one reason stuck out to many – the court declared that Telkom is not considered a state-owned entity.

The judge in the case said the government was merely an ordinary investor in the entity and that Telkom was not a state-owned entity as defined by the SIU Act. 

Through the Special Investigating Unit and the Special Tribunals Act, the SIU is empowered to investigate the affairs of state institutions like government departments, municipalities and state-owned entities.

Since Telkom is not considered a state-owned entity, the President could, therefore, not use this channel to investigate malpractice at the company.

The government is Telkom’s largest shareholder, with more than 40% of its equity, and the Public Investment Corporation, which manages state pension funds, owns another 14%.

Telkom not a state-owned entity – expert

Corporate governance expert Professor Peter Goss said Telkom is not a state entity just because the government has a shareholding in the company.

Firstly, he said the government’s 40.1% stake in Telkom does not equate to the common context of a state-owned institution.

In addition, the government, like any ordinary company shareholder, cannot invoke any law at any time to enforce its rights. They must invoke the right law, i.e., the Companies Act.

As a shareholder, the government can engage with Telkom’s board on suspected irregularities or even open a criminal case if it believes the company committed a crime.

However, it must invoke the right law to do so, which is not the SIU Act in this case.

“I don’t know why we need to look for another regulator to investigate corruption,” Goss told Kaya Biz.

“If indeed the concern is corruption, you simply open a corruption case with the South African Police Services or with the more advanced unit of the South African Police Services, the Hawks.”

“There are routes for this. I think invoking a side trick like the SIU legislation is disingenuous. There are channels for investigating activities like corruption in this country.”

Goss said the government should have engaged with Telkom’s board on its concerns.

Instead, the route the government chose could have had harmful implications for Telkom in the international capital markets, where it is listed as a public company.

“It is destructive. It erodes shareholder value for the other 50% of shareholders when more mature mechanisms are in place and available to act,” he said.