SA Telkom to impair the value of its legacy network

By bne IntelliNews June 6, 2013

South Africa’s ailing state-controlled telecoms operator Telkom said it is considering to impair the carrying value of its legacy network, given the fact that its shares have been trading significantly below their net asset value (NAV) for a considerable time period. The company elaborated that when the carrying value of an entity’s net assets exceeds their market capitalisation, it is an indication that the carrying value of the assets may be impaired. It said it could not provide the exact value of the impairment charge at this stage, but added that it would have no effect on its earnings before interest, taxes, depreciation and amortisation (EBITDA).

The former fixed-line monopoly explained that investment returns from its legacy network assets have declined in recent years in line with the global trend, reflecting technology changes, competition from mobile operators and regulatory issues. It said it will continue to invest in the upgrade of its fixed and mobile networks to meet increasing customer needs, particularly regarding data transmission. It expects to accelerate the migration of services from legacy assets to superior Internet Protocol-compliant assets over the next few years in order to improve its operational efficiency.

Analysts, quoted by TechCentral, said Telkom’s impairment plan is positive, as it will bring its balance sheet “in line with reality” and is also indicative that the new board of directors cares for the best interests of the embattled company.

The South African government holds a 39.8% stake in JSE-listed Telkom and the Public Investment Corporation (PIC), an investment management company wholly owned by the government, owns 12%.

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