Recently the Ministry of ICT confirmed that the government had purchased a 60% stake in local mobile operator Telecel Zimbabwe from Vimpelcom but one other interesting detail that was shared in relation to this was the valuation of the mobile operator.
While responding to questions from parliamentarians on government’s deal with Vimpelcom regarding Telecel, the Minister of ICT, Supa Mandiwanzira said that the operator’s market capitalisation stood at a minimum of $250 million.
If you look at the value of Telecel on the market today in terms of its subscriber base, in terms of the infrastructure, the network that it has built and in terms of the potential future cash flows of the business we are looking at a business entity that is no less than $250 million.
Mandiwanzira also highlighted how there is a huge level of optimism in the earning prospects of Telecel as it stands to outperform other state-owned enterprises, particularly its rival and now sibling, NetOne.
With the amount that we have spent plus an additional maybe $30 million investment, we could make Telecel Zimbabwe one of the biggest operators in this market which could pay huge dividends to the government.
It is not saddled with a lot of debt as is NetOne which is currently saddled with $300 million plus in debt because of the various loans that it has accessed through China of $280 million and $45 million and other borrowings locally. Telecel is not in that kind position.
So in terms of the best chances of having a strong, viable, efficient business, Telecel, among government-owned entities, stands out in that regard.
When we reached out to the Minister for clarification regarding the valuation he explained that the $250 million figure had been determined by the investment advisors for the transaction and not by the government.
A fair valuation or overpriced company?
At first glance, this is a very generous figure. Telecel only recently attracted $40-million for 60% in the deal that was hammered out with Vimpelcom and it also received an offer of $20 million from Brainworks for the 40% stake in the operator that is held by the Empowerment Corporation.
It is currently the smallest of the three mobile operators in Zimbabwe. In the most recent tally from the telecoms regulator, Telecel had 1,919 million active subscribers.
In the same review period (fourth quarter of 2015) its subscriber total translated to a 15.1% market share of the national mobile subscriber total.
In terms of network infrastructure investment, the most recent figures showed a national spread of 983 base stations for its 2G and 3G services which handle 7.1% of Zimbabwe’s total mobile broadband traffic.
Its share of mobile revenues in the last quarter of 2015 stood at $16,615 million or 11.5% of a $191 million national total and for a growing segment like mobile money it was handling 3.1% of all transactions in Zimbabwe.
All this suggests that Telecel is under an enormous strain and a $250 million valuation seems rather generous and very optimistic. especially when it’s stacked up against its contemporaries.
Econet Wireless, the country’s largest operator and Telecel’s largest competitor which is listed on the stock exchange has a market capitalisation of $227.3 million.
Its figures for network infrastructure (3,434 base stations), subscribers (6,7 million active) and revenue in the fourth quarter of 2015 ($134.1 million) cast a shadow on Telecel’s own numbers.
It’s worth highlighting that Econet has been undervalued by the recent erosion of value on the Zimbabwean Stock Exchange so a valuation of less than $230 million for the operator is also a huge discount that doesn’t reflect its intrinsic value.
Looking at Telecel, $250 million isn’t such a stretch, especially when other factors are considered here.
Vimpelcom is reported to have poured in about $237 million in Telecel. Such a huge investment clearly contributed to its actual value.
At the same time, coming under government ownership will help the operator clear some of the headaches that have stifled its growth prospects and valuation like its unpaid operating licence debt and the strain of policy compliance for indigenisation.
16 comments
Supa imbavha. Zimbavha
Is that perhaps because all of a sudden the license fee is no longer an issue???
Thts the problem with zimboz , they dnt bother to look at the bigger picture. I dnt blame him (nigel) h z brain washed
Point of correction, Mwandiwanzira wawanze bepa uchiyo dzisvute dzepaseriyo paMoza. Telecel has had no long term investor plus a high turn over of CEOs. Who independently evaluated this investment when the equipment lifespan expired kare kare, it has always been operated on a mothly US$500 million overdraft facility from the local banks and it never posted any ROI to the shareholders plus declaring dividends and profits.All external shareholders were putting dribs and drabs CEOs, even almost 99% equipment procured outside Zimbabwe. The equipment installed was during the era when there was no mushrooms of mobile broadband plus overally this animal called telecel needed and still needs US$300 million recapitalization. If this gvt managed well Ziscosteel, SMM plus jahwi remaparastatals ndopotential grab and smash but time will tell. Since when did these corporates zvipoko manage anything successfully, your guess could as good as mine. Econet is ZSE registered with an opaque share price and performance in this very hostile business swimming pool, what of Telecel, SMM, Ziscosteel, NetOne, TelOne, ndohwe kunhuhwira nemafuta edhiziri ndohwe kuda kupazha. The 60% aquisition was under duress knowing it to be a poisoned chalise, no wonder why PoTRAZ gets armtwisted into infrastructure sharing, Econet paid US$55 million, Telecel US$10 million and NetOne US$4 millio, what will be the sharing formula and who owns the infrastructure the sums don’t add up and what of licencing fees???? maybe laws for the powerful and the weak or the same laws but interpreted differently the indegenous mantra – my foot!!!
Mandiwanzira must explain how buying a company sinking in debt will be turned into biggest telco and gvt earner when gvt have a exactly same company saddled with debt which is Netone which is failing to give anything and gvt failed to turn it around.
You see Mandiwanzira, all gvt parastatals are failing big time, they have been and will always fail until you stop employing your boys and girls plus Party operatives. I see here Mr Minister sir that big ego is driving you to say things which doesnt tally with whats on the ground and best business practices.
This particular statements you made are good at political rallies down in Dema where pple will be chanting Yes Sir slogans without understanding what is being said and why its being said.
Since the government is now the majority owner of Telecel, it can now consolidate it with NetOne into a more efficient and resourcefull single company. The economies of scale from this deal would allow the new company to compete with Econet in a challenging macro-economic environment.
On the same tangent, government should be very wary of Econet. It’s diversification into various economic sectors gives it an unfair leverage in the Zimbabwean economy. The broad influence of Econet continued dominance need to be carefully addressed. In the long run, the government WILL HAVE to consider establishing antitrust laws to monitor growth of companies like Econet.
PS : I am not saying Econet as a company is not beneficial to Zimbabwe. It provides various jobs and services for the economy. Its scale allows it to stay competitive and push out new players. This is possibly why internet and mobile communication is still expensive in Zimbabwe.
Our gvt since now survives purely on taxes, it will be shooting itself if it tries to control Econet through hash law. Econet is diversifying to survive in the hash economy and continuous on-slaughter from a government which is suppose to protect it.
Diversifying must not be confused with anti competition moves!!
Check this out:
Samsung Bose
Samsung C&T Engineering & Construction Group
Samsung Heavy Industries
Samsung Engineering
Samsung Life Insurance
Samsung Fire & Marine Insurance
Samsung Card
Samsung Securities
Samsung Asset Management
Samsung Venture Investment
Does this sound familiar? If South Korean gvt had the same mentality of what seems to be driving our current ministers and gvt, what would have been of Samsung?
The Korean Economic Model is entirely different from the Zimbabwean Economic Model. South Korea decided to focus on the semi-conductor industry on a global scale. They focused on research, global competitiveness and innovation. On the backbone of strong and meaningful patents and liberal economic reforms, Samsung was able to scale it’s business and branch into the different sectors you mention here.
Samsung CREATES products, licenses its technology to other companies. This means SAMSUNG is a price setter and a world market maker. On the other hand Econet is a SERVICES company, it CHARGES people to use its infrastructure. and creates no long term economic value. Money flows from the Government to the civil servants, then it goes to Econet shareholders. I am more satisfied with this money going BACK to the Zimbabwean government.
Another different dimension that affect Econet is the complex political ecosystem in Zimbabwe. Some people say that the chairman of Samsung is more powerful than the president of South Korea. Given how political power has historically trumped all economic issues in Zimbabwe, l have reasonable doubt that Econet will ever become a significant regional player in Africa.
Taking from your example, you said South Korea focused on research, which then enabled Samsung. Good point.
What do you think is the focus for our government? Can the focus enable any giant to rise in the near future?
‘Giants’ are necessary in any economic system because of their ability to address macro-economic imbalances. Similar to Koreas focus on the global the semi-conduct industry is Japan’s focus on the global automobile industry. Econet currently does not have an strategic importance to the government’s economic policy.
Zimbabwe should be focused on the global macro-economic picture. This requires the reversal of various economic policies that have regressed the ease of doing business in Zimbabwe. We have a lot of resources : diamonds, platinum, gold etc. However, our economic resources are worth nothing if we don’t have customers to buy these goods or foreign investors and experts who are familiar with the global economic terrain.
Liberal economic policies, foreign investment friendly policies are essential for us to move forward.
You might argue that China was able to succeed alone. However, a careful look at Chinese policy reveals that post-Mao China implemented reforms that attracted investment. They included opening up China to foreign companies, SEZs for foreign and local businesses. China has since shifted to State Capitalism. Government spending is now driving economic growth. This is unsustainable in the long run .
Zimbabwe should put a lot less focus on its socialist programs and focus on investment and industry. Yes, it has resources but what is a car worth if it can’t take you from A to B ?
Note : I do not focus on Econet in my later responses because it’s service oriented. It’s a great company but from a broad economic perspective, it’s not very significant.
Why say econet is expensive on data Google now how much data cost in America you will be shocked. Check Verizon or at & t
Your example is based on a very shallow understanding of how chaebols are created in South Korea and how they function – the same way its foolish to argue your case using Mitsubishi Trading, Mitsubishi Motors, Mitsubish Denki, Mitsubushi Chemicals, Mitsubishi Heavy Industries etc
chaebol:
https://en.wikipedia.org/wiki/Chaebol
kudzidza hakuperi shuwa
Eliphas, your response is extremely shallow. If you have you have an argument, you state your case and present your points in a logical manner. Just merely saying, ‘shallow understanding’ and bringing up ‘chaboels’ does not contribute anything to this discussion. Macd Chip, l think you raised very important points.
Your example is based on a very shallow understanding of how chaebols are created in South Korea and how they function – the same way its foolish to argue your case using Mitsubishi Trading, Mitsubishi Motors, Mitsubish Denki, Mitsubushi Chemicals, Mitsubishi Heavy Industries etc
Bad idea you dont joinn a company with little debt about maybe 150 million thats negotiable with one thats over 500 million in debt.
Telecel will gave to operate standalone for now.