via Nssa takes over Telecel – The Zimbabwe Independent February 26, 2016
STATE-owned pension scheme, National Social Security Authority (Nssa) could soon effectively hold majority shareholding in the country’s third largest mobile phone operator, Telecel Zimbabwe Ltd (TZL) after it paid an outstanding US$30 million to Dutch-based erstwhile majority shareholders, effectively sealing government’s take-over of the firm, the Zimbabwe Independent can reveal.
Hazel Ndebele/Elias Mambo
Last year, government through its entity Zarnet, an internet service provider, and international telecommunications company, Global Telecom Holding, a VimpleCom subsidiary, entered into a sale and purchase agreement of Telecel Zimbabwe. The agreement was on terms and against payment of the purchase price of US$40 million. Zarnet was to acquire 100% shareholding in Telecel International Ltd (TIL) which, in turn, owns 60% of Telecel Zimbabwe.
Zarnet duly paid the agreed deposit of US$10 million leaving a balance of US$30 million which Nssa has since paid.
Information at hand shows that before Zarnet structured the deal, it had engaged Nssa to raise US$40 million for the acquisition of the 60% in Telecel. The funding structure that Zarnet wanted included a loan payable over a 10-year period at 7% per annum with a two year moratorium.
However, Nssa initially rejected the proposal saying it was unwilling to fund such a deal but in October last year its finance, investment and procurement board committee reviewed the offer after a due diligence report on legal and tax matters was submitted to it.
Nssa board chairman Robin Vela confirmed to the Independent this week, that Nssa had transferred funds for the purchase of Telecel, adding that the authority would snap a significant shareholding of the telecoms company, once further agreements are concluded.
Nssa, sources say, deposited the US$30 million into the Standard Chartered Bank local escrow account last week in the name of law firm, Honey & Blanckenberg.
“Government, Zarnet and Nssa have since reached an agreement in terms of which Nssa is to step in and take over all of Zarnet’s rights and obligations under the sale and purchase agreement with Vimpelcom,” Vela said.
“On the signing of the deed of novation and completion of the sale and purchase agreement with Vimpelcom, Vimpelcom will transfer the 100% shareholding in TIL to Nssa and thereby indirectly transfer the 60% controlling stake in TZL.”
This then means that when the transaction is complete, government will, through Nssa effectively end up with a substantial equity in Telecel in line with its board approved investment strategy.
“The shareholding will be subject to the buy-back option afforded to Zarnet having said that under all circumstances Nssa will retain a substantial effective equity holding in Telecel and Zarnet will have an equity shareholding of at least 15%,” said Vela.
Sources said the government’s intention is to eventually own Telecel Zimbabwe 100% because at the moment Empowerment Corporation (EC), a Zimbabwean consortium made up of a number of local companies and investors control 40% of the company.
Vela said Nssa had also reached a separate but related agreement with Zarnet and government to address Zarnet’s interests since it is the original purchaser that had paid the US$10 million deposit towards the 100% shareholding in Telecel.
“Zarnet warranted to Nssa that TIL holds a convertible shareholder loan account of US$98 million in TZL,” he said.
“On the basis of such warranty, the parties agreed that within 60 days of the completion of the sale and purchase agreement as between Nssa and Vimpelcom, Zarnet would have the option to purchase the 100% shareholding in TIL (the sale shares) from Nssa for an Option Fee equivalent to US$30 million plus all the costs, taxes and charges incurred by Nssa in acquiring the sale shares and in transferring them to Zarnet.”
Zarnet previously wanted Nssa to guarantee its US$40 million deal in the acquisition of the 60% equity and the shareholders’ loan, which they estimated at US$80 million even though it is actually US$98 million.
The exercise of the option, Independent understands, is entirely dependent upon Zarnet proving the US$98 million loan account. Upon exercise of the option by Zarnet, Nssa would then purchase the convertible US$98 million loan account from TIL for US$45 million which would be offset against the option fee with Nssa settling any difference. Nssa will then convert the US$98 million loan account into direct equity in Telecel Zimbabwe and Zarnet would then effectively be a diluted co-shareholder in the telecoms firm. Vela said by paying US$30 million to purchase shares in TZL it does not mean that Nssa has granted a loan to government or Zarnet.
“Nssa does not grant loans and has not granted any loan to Zarnet or the government. Nssa is to acquire an equity position by stepping into Zarnet’s shoes under the sale and purchase agreement with VimpelCom, in the event that Zarnet duly exercises the option, Nssa will maintain a substantial equity position by conversion of the delivered US$98 million loan account into substantial and direct equity in TZL,” he said.
Vela said Nssa has always had interest in direct equity participation in cash generative entities that enables the authority to boost its investment income and ultimately meet its obligations.
Prior to government taking over Telecel, various consortiums were jostling for the company, including investment holding and advisory company Brainworks, a US-based group led by former Telecel chief executive Francis Mawindi, Shingi Mutasa’s London-listed Masawara and a local partnership involving Old Mutual, CBZ and the Nssa, which has a US$1,2 billion balance sheet. Nssa generates surplus contributions in excess of US$10 million per month, which it is authorised to invest.
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