The past 10 years wouldn't have been possible without you. Thank you!
TelOne’s Managing Director Chipo Mtasa has said it might be quite difficult for TelOne to privatise as long as their legacy debts are not taken over by the government. There were a number of reasons given by the MD and most of them are really hard to argue with.
Telecel has legacy debts amounting to $383 million and most of these debts were acquired during the 90s and have only ballooned to these alarming levels because of penalty interests rates. According to the Herald, 54 percent of the debt is actually in interest and arrears.
So why is it necessary for government to take over the debts?
The government set a May deadline for the partial privatisation of underperforming parastatals but judging from what Mrs Mtasa said that might be a far-fetched target:
This debt takeover will make it possible for TelOne to enter will make it possible for TelOne to enter into meaningful privatisation discussions with potential investors.
It’s pretty clear that taking over a company with debts the size of TelOne’s will no doubt give investors (be it local or international) cold feet. Factor in Zim’s relatively small population and our government which u-turns on policy as if they were children, it’s not too hard to see why the people at the helms of these companies might be doubting how feasible it is to privatise that entity.
The MD also expressed fears concerning the kind of deal the government would be getting considering the state of Telecel’s balance sheet:
Furthermore the government stands to lose out by disposing its stake in TelOne without first addressing the balance sheet, which is in a technical insolvency position.
The balance sheet is used to determine the value of a company and TelOne being a company with more liabilities than assets is not the most attractive. Essentially what Mrs Chipo Mtasa is saying is that as long as the debt is not taken over by the government, both TelOne and the government stand to lose because it’s harder to get someone to invest in TelOne and even if they do the government might not get the best deal. Lose-lose?
How will the government pay off this debt, assuming they take it?
Well, the argument being made by Mrs Mtasa is that once TelOne’s balance sheet value is enhanced by government taking over the debt, it will be possible for the government to get more for their stake in TelOne and these some of these funds can go to servicing the debt. Dividends from the restructured company could also be used to service the debts, even though there’s a big IF the company is actually making profits.
Quick NetOne, Telecel, Africom, And Econet Airtime Recharge
If anything goes wrong, click here to enter your query.