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It Will Be Difficult To Privatise Unless The Government Takes Over TelOne’s Debts – TelOne MD

TelOne Zimbabwe, Zimbabwean telecoms, Zimbawbean state owned enterprises

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.

Good deal?

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.

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4 thoughts on “It Will Be Difficult To Privatise Unless The Government Takes Over TelOne’s Debts – TelOne MD

  1. the whole purpose of privatisation is so government can raise funds and also find investors with capital to recapitalise the parastatls.How does government raise funds by acquring more debt from non performing parastatals.Assuming we are to look at the valuation of the parastatal against its debts we essentially saying the governement is not going to make anything out of the privatisation.Might as well convert all the debt to equity.
    Having done projects at some of these parastatals it is sad to note there are a lot or redundant employees and a lot of job duplication and sadly this continues to be ignored.The main reason to me why no investor would come into any parastatal is to me not the debt issue as that can be restructured and some of it converted into equity,The main reason is the unsustainable fixed costs mostly in salaries and personal loans to employees including unashameadly to board of directors.
    Sadly these inefficiences are not confined to parastatals as the private sector is equeally bad at managing workforce and productivity.Majority of Zim companies and parastatals are over resourced and as long as this conitnue we will never be competitive.

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