UPDATE 2-CEO adds to exodus from S.Africa's Telkom

Mon Nov 5, 2012 12:04pm GMT

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* CEO to leave before her contract expires

* Telkom struggling to turnaround

* Shares fall more than 2 pct (Adds analyst comment, shares)

By Helen Nyambura-Mwaura and Tiisetso Motsoeneng

JOHANNESBURG, Nov 5 (Reuters) - South Africa's biggest fixed-line phone company Telkom SA lost its fifth chief executive in seven years on Monday, less than a month after the departure of its chairman and several directors.

The future of the state-controlled telecom, whose shares are down 40 percent this year, has been thrown into doubt by tentative government plans to renationalise and force it to push through a costly expansion of rural internet access.

The government in June also rejected a $385 million bid for 20 percent of the company from South Korean group KT Corp .

Telkom, the bigggest fixed-line operator in Africa, said that Chief Executive Nombulelo Moholi had given her six months notice, meaning she will depart in May, about a year before her contract was due to expire.

The government - which owns a near 40 percent stake and a further 10.5 percent through the state pension fund - has discussed ways to finance a buy-out and its communications minister is due to present a report on the company's future to cabinet.

"Telkom is quite a key asset for government. Since the failure of the KT Corp deal, things started not to look great for Telkom," said one analyst who did not want to be named.

"Based on that, and the strained relationship with the government, maybe she (Moholi) decided to just step down."

Telkom's chairman and several board members also departed following an annual general meeting last month.

Analysts have said the rejection of KT's offer underscored the government's determination to keep control of a company that many in the African National Congress view as a direct arm of the state.

Local media had said Moholi's predecessor stepped down because the government blocked him from making sweeping changes, including job cuts.

MOBILE FAILINGS

Stung by declining fixed-line usage and an expensive, failed attempt at expansion into Nigeria, Telkom has struggled to boost flagging earnings.

It has launched an expensive mobile phone unit that has struggled to win customers in a market dominated by Vodafone Plc unit Vodacom and MTN Group.

The mobile business has yet to turn a profit two years after its launch.

Under Moholi, the company has lost more than half of its market value. The stock is down nearly 40 percent so far this year, compared to a near 20 percent gain in South Africa's main stocks index over the same period.

Telkom did not give a reason for Moholi's departure and a spokesman declined to comment further on the company's statement, which said operational abilities would not be impacted.

"It was quite difficult to carry on doing a job with everything that has been happening at the board and shareholder level," said Steve Minnaar, portfolio manager at fund manager Abax Investments.

"It is unfortunate because they are losing another experienced person."

Telkom shares were down 3 percent to 17.65 rand by 1200 GMT, lagging behind a 0.4 percent decline in the broader All-share index. (Editing by Patrick Graham)

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