Telecel set for corporate rescue

Telecel Zimbabwe, the smallest of the three mobile phone operators in the country, is set to be placed under corporate rescue, a form of bankruptcy protection, due to serious financial distress.

In a High Court application filed yesterday by Mr David Mhambare, the Communication and Allied Service Workers Union of Zimbabwe secretary general, says Telecel is insolvent and faces liquidation if no rescue action is immediately taken.

Mr Knowledge Hofisi of Aurifin Capital was nominated the corporate rescue manager.

Its assets, as of December 31, 2021, were $1,5 billion against total liabilities of $24 billion, pointing to negative equity of $22,5 billion, says the court application.

"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," says Mhambare.

"If the solvency position of Telecel does not receive prime attention, it will inevitably go under liquidation."

Mr Mhambare said corporate rescue is ideal in the circumstances as it affords Telecel an opportunity to "rehabilitate, obtain a moratorium from the execution of judgments by litigants, develop and implement a sound corporate rescue plan that secures the rights of all creditors and preserve value to the shareholders by ultimately avoiding liquidation of the company which otherwise has prospects of resuscitation."

Telecel, Mr Mambare said, is in the financial doldrums after accounting for only $2 billion or 2,6 percent of the total revenue of $76 billion for the whole telecoms sector in Zimbabwe last year.

He said with the continuous advancement in technology, telecoms equipment requires constant upgrades. Currently, the global trend is pointing to 5G and there has been increased investment in 4G/LTE in Zimbabwe.

"Telecel hasn't invested adequate resources towards 4G/5G network compared to its competitors and this places it at a competitive disadvantage, yet internet and data will soon overtake voice as the largest revenue contributor for mobile telecoms," he says.

Workers have not been getting full salaries since January 2022 while benefits such as medical aid have been suspended. In 2015, there were close to 700 permanent employees, but the number has since fallen to about 300, of which most of them are graduate trainees and interns who have limited skills, Mhambare said.

Its financial challenges, which include significantly higher liabilities, have been aggravated by the impact of shareholder disputes which have been ongoing for years.

Telecel is 60 percent owned by Telecel International while 40 percent is owned by Empowerment Corporation (EC), a consortium of indigenous individuals and business groups.

Businesspeople, Dr James Makamba and Dr Jane Mutasa are major shareholders in EC.

Apart from Dr Makamba and Dr Mutasa, some individuals and business groupings claiming to be shareholders, including businessman Dr Phillip Chiyangwa, Zimbabwe Farmers Union, National Miners Association, Indigenous Business Women Organisation and Magamba Echimurenga.

Mr Leo Mugabe and Mr Patrick Zhuwao, nephews of the late former President of Zimbabwe, Robert Mugabe, are also among prominent figures who were once declared legitimate shareholders in Telecel Zimbabwe.

In 2010, the Affirmative Action Group, then led by Supa Mandiwanzira also demanded equity in the Empowerment Corporation, claiming that it was entitled to a share.

"The Empowerment Corporation appears to be a consortium whose members could be predominantly individuals and may lack the capacity to inject meaningful capital in (Telecel).

"(But)…Telecel can be saved from the brink of collapse through placing it under supervision and commencement of corporate rescue proceedings.

In order to resuscitate Telecel, it is my respectful estimation that a balance sheet reconstruction would be required through the implementation of a scheme of compromise.

 "The majority of creditors in numbers could be paid cash while a process of converting debt into equity with foreign creditors could be considered," says Mhambare.

In April this year, Telecel chairman Mr Selby Hwacha said the company was weighing several "options" to revive the business.  "Telecel is going through extremely difficult times…and we are burning our minds in trying to think what the best strategy is," he said.