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Vodafone given opportunity to raise stake in Kenya

Vodafone has pre-emptive rights it can exercise before the government can sell the shares to another party, and Telkom Kenya will use the proceeds of the sale to finance staff cuts.

The Kenyan government is set to sell 9% of the country's largest mobile operator Safaricom to fund the restructuring of the state-owned telephone company, the east African country’s president Mwai Kibaki has stated.

The government owns 60% of market leading Safaricom through the state-owned telephone company, Telkom Kenya. UK operator Vodafone Group owns the remaining 40% of the operator.

No timeline for the sale has been given, though there should be no shortage of interested parties given Safaricom’s U$116 million pre-tax profit for the year to end of March 2005. The operator counted 2.5 million subscribers at that time.

Vodafone has pre-emptive rights it can exercise before the government can sell the shares to another party, and Telkom Kenya will use the proceeds of the sale to finance staff cuts within six months after the deal is concluded. Company directors have estimated that between 6,000 and 8,000 jobs need to be shed.

Celtel is the second mobile operator in the Kenyan market, and together the two mobile players grew the market to approximately 4.6 million users by the middle of 2005 while the number of fixed line subscribers on Telkom Kenya's network fell to 281,764 in July last year, from 313,470 in July 2000.

Once Telkom Kenya is restructured, the government will sell 34% of its shares on the Nairobi Stock Exchange in an initial public offer. The government will sell 26% of Telkom Kenya to a single investor who will have management control of the company.

In total, the government's shareholding in Telkom Kenya would be reduced to at least 40%, from its current 100%.

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