Political vultures circle over Telecel

via Political vultures circle over Telecel – The Zimbabwe Independent March 13, 2015 by Taurai Mangudhla

POLITICAL vultures are circling over the country’s third largest mobile network operator, Telecel Zimbabwe, currently facing withdrawal of its operating licence due to non-payment of fees, amid strong indications Angolan President Jose Eduardo dos Santos’ daughter Isabel’s company, Unitel S.A, is keen to take over the local firm despite veiled resistance in the corridors of power in Harare.

President Robert Mugabe’s nephew Patrick Zhuwao has been at the centre of the Telecel storm, pushing to take the position of CEO in the beleaguered company amid indications he is part of a consortium angling to seize control of the contentious 40% local equity.

However, his move has been met with strong resistance from Telecel shareholders, in particular Empowerment Corporation (EC) which owns 40% of the company, which has been a cause of fierce local disputes. Self-exiled Telecel board chair James Makamba recently promised to bring the issue to finality although he might end up losing the battle.

Zhuwao is reportedly trying to muscle his way into the company, along with his close political and business allies. Efforts to contact him this week failed.

EC, an empowerment body comprised of various economic pressure groups in Zimbabwe, is 53,6% owned by Makamba’s Kerstel Corporation. The company is owned 14% by the Integrated Engineering Group, while another 12% is owned by the National Miners Association. The Indigenous Business Women’s Organisation and the Zimbabwe Farmers Union account for the remaining 6,4% and 12,9% respectively.

Makamba and other shareholders in the EC recently resolved to dispose of the 40% stake, a move blocked by Makamba’s business partner Jane Mutasa in the High Court. Mutasa alleged Makamba had stolen the shares. She also had the proposed ascendency of Zhuwao put on hold.

Cabinet, according to Information Communication Technology minister Supa Mandiwanzira, this week resolved to shut down Telecel on the grounds it had breached empowerment regulations and failed to regularise its licence.

Sources close to developments in both government and Telecel told the Zimbabwe Independent government’s move to shut down is partly motived by politicians and their businessmen allies’ desire to take over the 40% at a knock-down price during the opaque sale of the company.

Telecel’s 60% shareholder, Russian telecoms company Vimplecom, is now trying to dispose of its stake in the Zimbabwean operator to another foreign player, prompting local political and corporate vultures to circle over the company’s carcass.

Internal sources say Africa’s largest telecoms company, MTN of South Africa and Angola’s biggest operator Unitel, in which Isabel is a shareholder, are tipped to acquire the controlling stake in Telecel.

Latest developments come as Telecel insiders say the company is virtually bankrupt with no ability to meet its short-term and long-term liabilities. This, according to insiders, is despite the fact that the mobile operator continues to trade as if business is normal.

Sources said Telecel “does not have nor is it generating any excess cash from operations”.

A senior Telecel manager said: “The company is currently operating on an overdraft of US$500 000,” adding its shareholders and directors allegedly stripped it of cash to a point it is running on overdrafts.

The manager said over the years, Telecel operated on thin capitalisation amounting to US$750 000 at the end of 2014. Its operations bordered on technical insolvency as its liabilities outweighed its assets.

Another Telecel senior manager said the company requires as much as US$300 million to clear its obligations, replace ageing assets and maintain its network as well as invest in new technology and pay the outstanding US$125 million for its operating license.

Telecel’s financials, according to internal sources, are proof of poor corporate governance and mismanagement, showing highly irregular payments at the top line.

The company is said to have earnings before interest, tax, depreciation and amortisation (ebitda, a measurement of the company’s operating profitability) and net income margins averaging 24,5% and 2,8% respectively, compared to its competitors with an ebitda margin going as high as 43,5% and a net income margin of 18,9%.

Concerns have been raised over the company’s contractual payment of 5% revenue to its foreign shareholders and more than US$200 000 in individual director’s fees for its board members in 2012 and 2013, for instance.

According to information gathered by this paper, Makamba received US$262 000 and US$287 000 in board fees for 2013 and 2012, while Mutasa received US$203 000 and US$210 000 for 2013 and 2012 respectively.