Look back some years and you’ll recall the time we used to have PTC (Post and Telecommunications Company). PTC was later disbanded and branched off into 3 entities namely, TelOne, ZimPost and POSB. TelOne is one of the players in the local provision of voice calls and internet services. The company has been grappling with enormous debt from the early nineties – it’s nearing 20 years now. They are faced with a legacy loan totalling RTGS$958.75 million which government has now indicated they are taking over. This debt has put the company in a state of insolvency based on some technicalities. Essentially, TelOne has insufficient assets to cover their debts implying that they are unable to meet their financial obligations.
Why The Debt Is Huge?
There were loans taken out from 5 different financiers namely, Overseas Economic Cooperation Fund – Japan US$152 million (RTGS$381 million) , Africa Development Bank US$89.9 million (RTGS$224.75 million), Eksport finas – Norway US$13.8 million (RTGS$34.5 million), Krediltanstalt Fur Wiederanfbau – Germany US$12.6 million (RTGS$31.5 million) & Eximbank – Japan US$9.5 million (RTGS$23.75 million). The debt amount has surged due to interest rates (as high as 8%) and compounded by penalties. At the beginning of the fourth quarter of 2018 it was reported that of the debt payable, interests and penalties constituted 54%.
Its Crippling Effects
TelOne has been ailing due to the burden of trying to offset the huge debt it owes. This has adversely affected the company’s operations since it has been hamstrung from embarking on any expansion programs. Ultimately the company has been in a position where they have struggled to maintain a positive balance sheet. Remember the services PTC used to offer have mostly become obsolete and the continued survival of TelOne is mainly hinged on diversifying into new technologies, products and services.
Why A Government Assumption Is Necessary?
First off, the government and other parastatals already owe TelOne RTGS$101 million. Secondly, TelOne is considered technically insolvent; technical in the sense that its state of owing is the government’s responsibility not TelOne per se. That is why TelOne management has underscored the need for the government to assume the debt out of their hands. Thirdly, if you’ll recall government gave directives a while back that ailing parastatals must privatize partially, by next month. TelOne has, of course, expressed concerns about the legacy loan as an impediment to achieving that. Privatization requires investors in order to pay-off, of which debt puts off prospective investors. Thus, the government debt assumption is meant to sanitize TelOne’s financials so that it becomes attractive to investors. Once investors are found and lucrative deals are struck then prospects of returns are resurrected.
The government takeover is also strategic in that government is better poised to strike loan repayment agreements with the concerned parties. The government can leverage on bilateral relationships with the host countries of the financiers that are owed.
How Will The Government Repay The Loan?
That’s obviously the big question, how then will the government pay back the loan? The plan is projective at most but is attainable if investors can be found. Ideally, the government already is a shareholder of TelOne; this means it’s entitled to dividends when profits are realized. So, here is the scenario, the government assumes the debt, TelOne’s balance sheet is sanitized, investors are lured, deals are struck, operations are scaled, expansions are carried out, profits are made, the government gets dividends and then those dividends are used to service the assumed debt. In theory at least. The stark reality is that like many other debt assumptions the taxpayer foots the bill.
The Days Ahead For TelOne
If this whole debt takeover process is done properly TelOne can become a formidable threat to ZOL. Ever since the internet data tariff hikes, it’s evident, by comparison, that TelOne has cheaper packages than ZOL. Therefore this debt takeover can open up avenues for the company to start working up some serious expansion drives. This will go a long way in aiding the company to provide even more attractive packages. The prospect of the infrastructure of the only fixed telephony operator in Zimbabwe, debt free, is an attractive investment.