Telecel teeters on brink of insolvency

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Zimbabwe’s beleaguered mobile network operator Telecel Zimbabwe’s finances are in a sorry state amid indications the company is bankrupt. The company reportedly has management inefficiencies, high director fees and is riddled with hefty management fees paid out to its foreign shareholders.

Taurai Mangudhla

Since its inception in 1998, Telecel has gone through major changes in shareholding at an international level. The original shareholders were led by Rwandan-born Miko Rwayitare, before the company was bought by Orascom from Egypt, which later sold to Vimpelcom, a Russian company that is now trying to dispose of its 60% equity stake in the operator either to Isabel dos Santos’ company, Unitel S.A, or Africa’s largest mobile operator MTN of South Africa.

Isabel is Angolan president Jose Eduardo dos Santos’ billionaire daughter.

“This instability has meant the company has not had a significant shareholder with a long-term outlook and willing to invest for a long-term in Telecel and Zimbabwe as a country,” reads part of the documents seen by businessdigest.

“Telecel Zimbabwe has effectively lacked leadership throughout the past decade as a result and this has been a major contributor to the value destruction the company has experienced.”

The company’s protracted wrangle over the 40% equity stake under the Empowerment Corporation is still dragging on and currently in the courts, although Telecel chairman James Makamba has recently promised to bring it to finality.

Although recent media reports exposed a political plot to wrest control of the country’s third largest mobile operator, the company’s existence is also under threat from internal problems as Telecel appears to be flirting with insolvency. The company pays a 5% management fee to foreign shareholders.

For instance, while the company made a US$10,9 million loss, it paid management fees of US$6,2 million in FY14.

Telecel, facing possible withdrawal of its licence over non-payment of licence fees and flouting indigenisation regulations, is currently running on a US$500 000 bank overdraft and has no ability to meet its short-term and long-term liabilities, according to the documents.

Top management at Telecel said despite starting in 1998, the same year as Econet Wireless Zimbabwe, which has equity in excess of US$668,9 million, Telecel is thinly capitalised at US$750 000 and is teetering on the brink of insolvency.

“The depletion and stripping of cash in Telecel Zimbabwe by shareholders and directors through various instruments has been to such an extent that the company was unable to pay licence renewal fees and has had to negotiate a five-year payment plan,” reads part of the document.

“All the cash that has been generated from the company since inception in 1998 has been stripped out from the company to a point where it is running on an overdraft of US$0,5 million while Econet, for instance, had US$94,5 million in cash at the end of the comparing period.”

Telecel insiders said the company has generally failed to compete with Econet as a financial comparison shows revenues for the country’s biggest operator are six times higher, while its subscriber base is four times bigger than Telecel’s.

Econet’s average revenue per user is also 60% higher than Telecel’s, according to the documents.

Telecel is also said to have earnings before interest, tax, depreciation and amortisation (ebitda) 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%, a situation which insiders say highlights inefficiency, management ineptitude and highly irregular payments made to the top line.

7 thoughts on “Telecel teeters on brink of insolvency”

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  2. Two-Faced Ace says:

    The biggest loser in all of this is the customer.The little competition Telecel was bringing to Econet put Econet relatively on their toes.Now without Telecel expect Econet’s arrogance, poor customer service and ridiculous ‘promotions’ to get even worse.Wouldnt bother talking about the competition Netone brings…

  3. Tsepo says:

    the biggest losers is the thousands of people employed by telecel, a national disaster if they let politics close this company

    1. sahxy says:

      True and that will be a big tragedy down to the “juice card” vendors!

  4. Munyaradzi says:

    Telecel can not close down. There already are investors willing to take over. I don’t see how politics is a factor in this since telencephalon is not a public company. Shareholder muscling and poor management are common vices in the corporate world, more so in a tattered economy like ours.

  5. fear me says:

    Say no more. Indiginisation. Russian ‘ investors ‘. A corrupt dictator. Criminal ‘millionaire’ daughter. Whore vet shareholders. Court wrangles. Mafia underworld links. Money-laundering. Links to a criminal mugabe-led cabal. Nepotism. High flying. Its probably worth no more than its famous juice card !!!????!!!!!

  6. Clido says:

    from th article am nt sure if its politics at play in ths company or its somethin els. did u chek that its makin losses and not profits, did u chek that its runin on overdraft of half a million dollars.

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