Cabinet has okayed the partial privatisation of TelOne and NetOne. According to the Minister of Finance and Economic Development Professor Mthuli Ncube, government expects to rake in about US$350 million when they dispose of some of their shareholding in the two enterprises. But, the task of finding interested investors is not a walk in the park. A history of maladministration, legacy debt and other ills only serve to scare away potential investors.

Single deal

TelOne and NetOne are not being sold as two separate entities. Government is looking to sell both in one, single deal. “We are confident that this approach of offering the two companies as a package is the way to go. They are joined to the hip and they are best working together…,” said Professor Ncube in a Post Cabinet briefing. He added that a Special Purpose Vehicle (SPV) will be created which will own 100% of the companies. Government will then sell 60% and hold onto the remaining 40%. However, Professor Ncube admitted that the shareholding percentages may change subject to negotiations.

It won’t be easy

Full and partial privatisation of parastatals was muted in October 2018 as part of the Transitional Stabilisation Programme (TSP). Even before that, talk of privatisation of parastatals had started but progress has been very slow. Like many other parastatals, TelOne and NetOne have long been burdened by debt. Maladministration and failure to access equity capital also add on to the reasons why these parastatals continue to miss performance targets according to Professor Ncube. TelOne recorded a loss of $11.8 million in 2018. They also have a legacy debt of $384 million to grapple with. On the brighter side, 38% of TelOne’s revenue in 2017 came from internet services. This is an improvement on the 29% recorded in 2016.

Just recently, TelOne commissioned a fibre backbone network which is set to reduce their internet costs by up to 40% further positioning them as a serious player in the broadband market. For NetOne, liabilities exceed assets by $48 million. However, they managed to record a $10 million profit in 2018, a remarkable jump from a loss of $58 million in 2017. Despite these good signs, investors may need to see more positive signs before committing to a deal.

The difficulty in reaching a deal with a suitable investor can be seen from a distance. In October 2018, Cabinet agreed to allow NetOne to start talking to Telkom of South Africa. Since then, we have heard nothing about that discussion. Years back, another telecoms giant MTN expressed interest in NetOne but again, nothing materialised. We can only suspect that the deal was not favourable. This time around, it will not be an easier because even the infrastructure continues to deteriorate owing to foreign currency shortages. Interest on debt is obviously also increasing by the day.

But, hope is there!

The renewed impetus with which government is working on this deal cannot be ignored. That, coupled with the unique positions that TelOne and NetOne occupy in the market may be enough to persuade investors to think twice. NetOne has a 35% market share in terms of subscribers. They are second to Econet. This is not a bad share of the market by any means. Their tariffs are favourable when compared to Econet. Econet itself seems to no longer focus on voice and data. They have ventured into many other things like insurance and farming initiatives which may prove to be further distractions. This may leave NetOne with less competition in the traditional voice, data and sms space. In fact, many people have both Econet and NetOne sim cards and they choose whichever is cheaper and convenient depending on what they want to do at that time. If government can put their house in order and package the deal strategically, a buyer who is willing and able may be found soon. A way to manage the debt without dumping it all on the investor has to be devised. If need be, special tax breaks can be thrown into the mix.

The speed with which government will move to implement set targets will determine their seriousness in hunting for an investor. Because previous attempts have yielded nothing, no one will be begrudged for lacking excitement in these new attempts. But, if indeed an investor comes on board, it will be a massive confidence booster for both government and ambitious Professor Ncube.