Telecel Zimbabwe lurches deeper into crisis

By Staff reporter | 19 Oct 2018 at 12:27hrs
Telecel
Zimbabwe's third largest mobile phone operator Telecel Zimbabwe incurred a $13,8 million loss for the seven months to July on poor revenues as the company lurches into serious financial woes that have seen creditors issuing a litany of summons and letters of demands to recover funds. While perennial shareholder tussles continue to dog the operator, the company has been thrown in dire straits exposing its weak balance sheet that has been hit hard by a sagging subscriber base.

Company minutes of board meetings held that were gleaned by this paper indicate that Telecel has thin capitalisation as the debt to equity ratio exceeded 3:1. The company's auditors KPMG have raised the red flag saying the network operator is technically insolvent and there is an urgent need for the shareholders to provide a letter of support in meeting any liabilities on behalf of the company in the event it failed to meet its obligations.

So bad is the situation that the company risks being evicted from rented premises countrywide as it struggles to honour obligations, according to internal documents gleaned by Business Times.

One of the creditors ZESA Pensions Fund has elected to summarily cancel the lease agreement and demand the eviction of the mobile network operator from its premises in Beitbridge over $8 415,35 owed in rentals and operating costs.

ZESA Pension Fund's lawyers Kadzere, Hungwe & Mandevere legal practitioners have since caused the issuance of summons against Telecel in the High Court seeking the clearance of arrears and the eviction.

In a letter dated October 8, 2018, the lawyers told Telecel that it had breached the terms of the lease agreement after failing or neglected to pay rentals and operating costs over an extended period of time thereby "accumulating outstanding balances of $8 121,29 and $294,16 in rentals and operating costs arrears respectively" as at October 8, 2018.

"Our client has thus elected to summarily cancel the lease agreement and demand your ejectment as per Clause 28 of the Lease Agreement. We hereby advise that your lease has been cancelled. You have no right to continue occupying or client's premises and you must vacate the property forthwith," the lawyers wrote.

Other than ZESA Pension Fund, Telecel is under pressure from other creditors such as Bulawayo City Council and Mutasa Rural District Council where summons have been issued over debts amounting to $129 247,63 and $36 025 respectively.

The mobile network operator has also received letters of demand from Kwekwe City Council and City of Gweru to Telecel to settle $26 294,10 and $88 600 respectively. Askeland has also written a letter of demand for Telecel to settle the $30 534 debt while Adrenalin's demand to be paid its dues amounting to $345 011 and the matter is before arbitration.

One of the creditors Huawei is considering selling the debt to local banks and that summons have been received from suppliers including international suppliers as there is limited foreign currency to pay, according to minutes of a July 3 2018 board meeting.

Business Times understands that Telecel also has outstanding payments to the Telecel Zimbabwe Pension Fund at Zimnat. Last month, the insurance firm told Telecel that it was now three months in arrears and the mobile network and the operator had to urgently pay all the premiums due, according to people familiar with developments.

This comes at a time the company made a net loss of $13,8 million in the period January to July due to a decline in subscriber base and average revenue per user.

The operator said its month on month revenue has been lower than budget impacted by continued decline in voice revenue as most subscribers are gravitating towards data and are using now using over the top services such as WhatsApp.

"Since Telecel is predominately a 2G network (especially in the rural and peri-urban areas) data connectivity is poor resulting in huge churn and reduced ARPU. Competition—Econet and NetOne—massively rolled out 3G and 4G for fast data thereby offering the customers a better experience," Telecel said in internal communication.

Telecel has been suffering from negative cash outflow. From -$52 061 in May, net cash outflow was -$87 130 in May and projected to worsen to -$43 304 575 in December. Telecel said the negative cash flow arose due to low revenue while most of costs are fixed.

It said licence fees arrears of $25 million have accrued to date and payment has been moved forward.

Its financial status was discussed at the board meetings on April 11 and July 3. At the April 11 board meeting, the auditors warned that the company faced a huge potential tax liability emanating from the thin capitalisation and accrued management fees.

The members requested board member Selby Hwacha to analyse the legal opinions that management and the auditors had obtained and map the way forward with both management and the auditors.

"The Telecel International representative requested Musendekwa and Hwacha to examine the Sale Purchase Agreement in order to ascertain whether the debt of $90 million which was owed to Telecel International by the company was part of the sale transaction.

They were also tasked to explore the possibility of restructuring the balance sheet in respect of management fees and trademark fees accruals," the minutes said.

Telecel Zimbabwe chief executive officer Angeline Vere's number went unanswered when Business Times called her yesterday.

Information and Communications Technology and Cyber Security minister Kazembe Kazembe said he was not aware of the challenges Telecel is facing as he is "yet to meet the board".

Government, through ZARNet acquired 60 percent in Telecel Zimbabwe in 2016. The remainder is owned by Empowerment Corporation (EC), a coalition of indigenous groupings.

EC has two representatives in the Telecel Zimbabwe board in James Makamba (chairman) and James Mutasa. Government is represented in the board by Hwacha and Francis Mawindi. Its other representative, Barbara Rwodzi resigned after winning the Chirumanzu seat in the National Assembly during the July 30 elections.

There is growing sentiment that government has to have more directors in the board to reflect its shareholding.

Fresh details emerged yesterday that EC had acquired 40% shareholding in the company without putting a cent. It is understood that EC secured a bank guarantee from a local commercial bank of $3,5 million to pay for its shares in Telecel but failed to honour its payment obligations and instead Telecel International picked up the bill on the understanding that EC would pay it back.

It failed to do so. As such, the company has not received any financial support from EC in terms of capital investment with funding for network expansion, license repayment coming from the major shareholder or internal resources.

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