NAIROBI - United Arab Emirates-based Infrastructure Corporation of Africa LLC (ICA) will take over 60% of shares in Telkom Kenya from London-based private equity firm Helios after a competitive process, Kenya's finance ministry said on Wednesday.

The Kenyan cabinet on Tuesday rescinded a deal between a previous administration and Helios for the nationalisation of Telkom, citing "governance challenges" in that transaction.

The move could create uncertainty for foreign investors who usually do not like to see drastic changes in policy, including cancellation of sealed deals, whenever a new government takes over, Nairobi-based legal experts said.

The finance ministry said it had decided to abandon nationalisation of the company and launched a search for a new strategic investor in January this year, which identified ICA as the winner.

"The offer by ICA includes capital injection to fund Telkom's critical infrastructure and the overall upgrade of the company's capabilities, and also settle some of the outstanding liabilities of the company," the ministry said in a statement.

The new deal will see Helios transfer the majority stake to ICA, the ministry said, without disclosing the financial details of the deal with the UAE company.

Helios, which had acquired the 60% stake from Orange in 2016, has so far not commented on the government's decision to rescind the deal.

On its part, the government which will retain its 40% shareholding, will spearhead regulatory reforms to correct the imbalances in the telecommunications industry, the Treasury said.

Telkom is the smallest operator after Safaricom and Bharti Airtel, but it runs some key assets relied on for government communications, including a national fibre-optic network.

Its management has for years sought reforms in the industry to tame the dominance of Safaricom, which has a huge command of revenue and users.

(Reporting by Duncan Miriri. Editing by Jane Merriman; Editing by David Gregorio)