Telecel has been in freefall for years and its deterioration has only been accelerating. We have been gleening this decline in the quarterly reports released by the Postal and Telecommunications Regulatory Authority (Potraz).
We now have insight from people who have had access to full Telecel financials and the situation is worse than we thought. That’s saying something because we all knew it was bad, just not this bad.
A High Court application to place Telecel under corporate rescue was filed yesterday. The filing was made by David Mhambare, the Communication and Allied Service Workers Union of Zimbabwe secretary general.
The Telecel situation
We have covered how Telecel is making only 64 cents in revenue from each of their customers per month. We also talked about how their revenues are down 98% from 2015 levels. These and other figures painted a gloom picture but we have more about the situation from the corporate rescue application.
Workers have not gotten full salaries since January 2022 and benefits like medical aid have been suspended.
The number of employees has fallen from around 700 in 2015 to 300 in 2022. Worse still, most of the 300 current employees are graduate trainees and interns with limited skills according to Mhambare.
Telecel accounted for only 2.6% of total revenues for the telecoms sector.
As at 31 December 2021, Telecel had assets worth $1.5 billion against total liabilities (zvikwereti) of $24 billion. Making for negative equity of $22.5 billion.
My friend, I am broke but my assets exceed my liabilities. They are not in the billions but I don’t have creditors to worry about.
That position where liabilities exceed assets is what is classically called insolvency. What usually follows from insolvency is liquidation (closure). The little assets on hand are sold and the creditors are paid a fraction of what they were owed.
It doesn’t have to get that far though. What the High Court application suggests is placing Telecel under corporate rescue. You may be wondering, why are they talking about corporate rescue and not judicial management.
We used to place struggling companies under judicial management in Zimbabwe. However, that judicial management did not yield the results we wanted. More often than not, it changed nothing. So, in 2018 the Insolvency Act introduced the concept of corporate rescue.
The main difference is that “corporate rescue is predicated on a broader social justice perspective unlike the old law of judicial management that was based on private corporate interest.” Or in other words, corporate rescue is judicial management in a social justice costume.
We could debate until the cows come home about whether placing it under corporate rescue would actually rescue Telecel. Yes, the Supreme Court scolded the High Court for not taking corporate rescue seriously, saying corporate rescue proceedings must be conducted with the utmost diligence and care.
Even so, I am not betting any money on corporate rescue proceedings saving Telecel. What can’t be disputed is that something needs to be done or Telecel will be going down.
Of the need to act, Mhambare said,
The…conditions indicate the existence of a material uncertainty that may cast significant doubt on the company’s ability to continue operating as a going concern.
If the solvency position of Telecel does not receive prime attention, it will inevitably go under liquidation
The corporate rescue plan tabled by Mhambare would involve a balance sheet reconstruction. This is an exercise in compromise where creditors and shareholders make concessions so that the company can come out in a stronger position.
This usually involves some debt being converted to equity, some debt being waived, new debt or equity financing etc.
In Telecel’s case, Mhambare proposes,
The majority of creditors in numbers could be paid cash while a process of converting debt into equity with foreign creditors could be considered
Of the Telecel shareholder mess
The major reason Telecel has not been able to reverse course has been the shareholder squabbles. It is hard for anyone to inject more capital when their shareholding is being disputed. Of the Empowerment corporation that owns 40% of the company, Mhambare sees it this way,
The Empowerment Corporation appears to be a consortium whose members could be predominantly individuals and may lack the capacity to inject meaningful capital in
This won’t do because Telecel needs capital injections yesterday. As data services become more important to the fortunes of telecoms, Telecel finds itself having only 1.2% of the LTE infrastructure in the country and 0% of 5G.
Mhambare thinks corporate rescue is what will save Telecel from this. It’s a risk, and it is not clear just how understanding creditors will be when it comes to restructuring debt. However, I think it’s a risk worth taking, it beats whatever Telecel is doing right now.
What do you think about all this? Do you think corporate rescue will save Telecel even with the same shareholders still in place? Or do you think Telecel should just be sold?
I think that would be the best option but those shareholders do not seem to be the kind to sell. They would rather the company die than lose control. Whatever the case, it should be a good show.