TelOne pushes for debt takeover

Source: TelOne pushes for debt takeover | Herald (Business)

Africa Moyo recently in MAZOWE
GOVERNMENT should take over TelOne’s legacy debts amounting to $383 million to realise a meaningful value from the privatisation process which is underway, a senior company executive has said.

The State-owned fixed telecoms operator is technically insolvent due to the legacy loans dating back to the era of the Posts and Telecommunications Corporation (PTC). This has made it unattractive to investors.

This was said by TelOne managing director Chipo Mtasa yesterday while addressing members of the Parliamentary Portfolio Committee on Information Communication Technology after a tour of the Mazowe Earth Satellite Station.

Mrs Mtasa contends that if Government goes into discussions with potential investors without hiving off TelOne’s legacy debts, it is highly unlikely going to get fair value.

Apart from TelOne, Government has also earmarked Zimpost, NetOne, Telecel and the People’s Own Savings Bank (POSB) for privatisation.

“This debt takeover will make it possible for TelOne to enter into meaningful privatisation discussions with potential investors.

“Further, Government stands to lose out by disposing off its stake in TelOne without first addressing the balance sheet, which is in a technical insolvency position,” said Mrs Mtasa.

The legacy debts have made it difficult for the fixed phone operator to source funds for investment into network expansion.

In 2014, Government passed a resolution to authorise the takeover of TelOne’s legacy debt, to free its balance sheet and make it appealing to investors.

However, the resolution has not been implemented notwithstanding the fact that Government made a further undertaking to China-Eximbank that the loans would be taken over.

TelOne owes a number of lenders including Eksportfinas of Norway ($13,8 million); Eximbank of Japan (Sumitomo II) ($9,5 million); BNP of France ($36,2 million); Tunisia-based African Development Bank ($89,9 million); Overseas Economic Co-operation Fund (OECF) JBIC III of Japan ($152,4 million) and Kredittanstalt Fur Wiederaufbau (KFW 11A) of Germany ($12,6 million).

The loans were obtained to boost PTC’s network.

The bulk of the loans, which had punitive interest rates, by global standards, of between 1 percent and 8 percent, were obtained between 1992 and 1997. But it is the penalty interest rates that have caused huge jump in the debts.

For instance, the principal loan from Eksportfinas was $1,664,070. Its interest rate was 8 percent.

However, due to an 11 percent penalty, the debt has ballooned to $12,1 million.

As at October 31, 2018, the principal balance of the legacy loans was $177,5 million while interest, arrears and charges amounted to just over $206 million.

Overall, the legacy debts amount to $383,5 million, which were dumped on TelOne in 2000 following the unbundling of the then PTC.

PTC was unbundled into three entities; NetOne, Zimpost and the Post Office Savings Bank (POSB).

Essentially, 54 percent of TelOne’s debt is in  interest and arrears with 46 percent being the
principal balance. Government guaranteed the loans.

Mrs Mtasa contends that once Government takes over the debt, TelOne’s “balance sheet value will be enhanced”, giving at the possibility of a higher disposal value in the event of finding an investor.

“It is recommended that Government takes over the legacy loans as a way of recapitalising the business. Government is already tied to the legacy loans as a guarantor for all the loans.

“Government is in a better position to negotiate the loans (repayment) on a bilateral position. Further, Government will be able to service the loans through dividends paid out by the restructured TelOne and from partial privatisation proceeds,” said Mrs Mtasa.

ICT Parliamentary Portfolio Committee chairperson Mr Charlton Hwende said they will continue to engage Government to take over the debt.

Mr Hwende said during the 2019 National Budget consultations, Finance and Economic Development Minister Professor Mthuli Ncube said “it was bad business to take over the debt when selling (the company)”.

Government has set May 2019 as deadline for privatising TelOne. A meeting to select the transaction advisor is expected to be held on Friday.