(Last Updated on November 14, 2015 by Editor)
Sources in Amsterdam told the Zimbabwe Independent this week government, through its wholly-owned dodgy entity Zarnet, concluded the controversial and complicated deal in which it will acquire 60% of VimpelCom shareholding in Telecel Zimbabwe and US$40 million of the global investor’s shareholders’ loan of about US$100 million.
After securing a structured financial deal from local banks and other funders, government, fronting Zarnet, was able to raise a US$10 million deposit to pay VimpelCom, with the remainder expected to follow in due course.
The Independent’s Amsterdam sources said VimpelCom was expected to receive the deposit yesterday and make an announcement it has divested from Telecel Zimbabwe after informing its shareholders and management.
Telecel Zimbabwe is owned 60% by Telecel International, which in turn is controlled 100% by Global Telecom Holding, a VimpelCom subsidiary.
Government’s intention is to eventually own Telecel Zimbabwe 100%.
VimpelCom, listed on the Nasdaq, the second-largest bourse in the world by market capitalisation behind only the New York Stock Exchange, is a global provider of telecom services incorporated in Bermuda and headquartered in Amsterdam with 223 million customers in 14 countries.
Its subsidiary, Global Telecom is an international telecoms company operating GSM networks in the Middle East, Africa, Canada and Asia. In addition to its indirect equity in Telecel Zimbabwe, it operates networks in Algeria, Pakistan, and Bangladesh.
Telecel Zimbabwe is jointly owned by Telecel International, which has 60%, and Empowerment Corporation (EC), a Zimbabwean consortium made up of a number of local companies and investors who control 40% of the company.
Zarnet was founded in 1997 and has been operating as an internet service provider. According to a report on parastatals by Auditor-General Mildred Chiri for the financial year-ended December 31 2014, Zarnet is a broke entity. This is not the first time VimpelCom has divested itself of its mobile interests. In October 2014, it sold its mobile networks in the Central African Republic and Burundi to Zimbabwe’s leading mobile operator, Econet Wireless.
In the meantime, Zarnet’s financial advisors are engaging EC investors to also secure the sale of its 40% equity to government.
Prior to government taking over Telecel, various consortiums were jostling for the company, including investment holding and advisory company Brainworks, a US-based group led by former Telecel chief executive Francis Mawindi, Shingi Mutasa’s London-listed Masawara and a local partnership involving Old Mutual, CBZ and the National Social Security Authority (Nssa) which has a US$1,2 billion balance sheet. Nssa generates surplus contributions in excess of US$10 million per month, which it is authorised to invest.
The consortium comprising Old Mutual, CBZ and Nssa vigorously pushed to take over Telecel Zimbabwe until it was elbowed out by government.
While various groups were scrambling for the 60% shareholding in Telecel, there are other entities which were battling for the EC’s 40% stake. These included Brainworks and Kingville Investments, which expected to be financed by a New York investment bank.
As previously reported by this paper, Angolan President Jose Eduardo dos Santos’ daughter Isabel’s Unitel was also said to be interested in the deal.
Diplomatic sources said this week Angolan Secretary of State for Telecommunication and Information Technologies Aristides Cardoso Federico Safeca reportedly met Zimbabwe’s Information, Communication and Technology (ICT) and Courier Services ministry officials between March and April to clear the path for Unitel.
The Zimbabwe government entered the fray after cabinet decided in March that ICT minister Supa Mandiwanzira and Attorney-General Advocate Prince Machaya should take charge and pursue the deal.
In a bid to fight off rival consortiums, government manoeuvred to get control of the process by threatening in January to cancel Telecel’s licence. It eventually cancelled the licence on April 29 alleging Telecel had failed to pay US$137,5 million in licence fees. The licence was only restored on May 7 after a bruising legal battle.
The Independent’s sources in Amsterdam said Global Telecom chairperson Anton Kudryashov contacted authorities in Harare in March, indicating VimpelCom was already talking to various interested parties over the 60% shareholding.
Kudryashov also indicted VimpelCom was willing to enter into “confidential negotiations” with government to dispose of its equity at fair market value.
However, he also requested that if talks were to proceed smoothly then government should direct the Postal and Telecommunication Regulatory Authority of Zimbabwe (Potraz) to withdraw its notice dated March 6 to cancel Telecel’s licence.
Before Zarnet structured some funding, it had engaged Nssa to raise US$40 million for the acquisition of the 60% in Telecel. The funding structure that Zarnet wanted included a loan payable over a 10-year period at 7% per annum with a two year moratorium.
However, Nssa initially rejected the proposal saying they were unwilling to fund such a deal but later its finance, investment and procurement board committee reviewed the offer after a due diligence report on legal and tax matters was submitted to it.
The due diligence report was done by Mawere Sibanda Law Firm, while BDO-Zimbabwe Chartered Accountants did another due diligence report on Telecel’s value and technical matters.
Nssa went on to meet with VimpelCom twice and the second meeting was attended by ICT ministry officials and CBZ — acting as Zarnet’s financial adviser.
The Nssa finance committee discussed the issue on September 22 after a series of meetings which began in earnest March. Prior to that they had been other meetings in 2014, government sources said.
Zarnet wanted Nssa to guarantee its US$40 million deal in the acquisition of the 60% equity and the shareholders’ loan, which they estimated at US$80 million even though it was actually about US$100 million.
In official communications seen by the Independent, Zarnet had indicated it was going to pay US$7 million cash deposit on condition of talks on October 1 and then clear the US$33 million in 90 days.
If Zarnet, a trail of e-mails shows, failed to clear the US$33 million, Nssa would step in and take over its equity with the internet entity forfeiting the deposit. After intense deliberations, the Nssa investment committee agreed the pension authority would guarantee the US$40 million deal between Zarnet and VimpelCom as well as the US$80 million in shareholders’ loan in Telecel.
This was on condition that a formal agreement between Zarnet and Nssa would be drafted with clear terms and conditions.
The e-mails also say Zarnet was supposed to warrant that they have US$7 million deposit and capacity to clear the US$33 million balance. Another condition was that Zarnet should reconfirm Nssa had an unconditional 5% of its equity and another 5% of shareholders’ loan as payment for its support.
The Nssa guarantee was expected to be valid for up to 120 days from date of signing, although the pension authority preferred 90 days. During the guarantee period, Zarnet was expected to surrender some security to Nssa.
However, negotiations between Zarnet and Nssa started collapsing due to unmet demands and lack of trust. In communications between Nssa, Zarnet and Mandiwanzira, Nssa sounded sceptical and unwilling to be railroaded into an agreement insisting on certain demands.
While Nssa’s concern was securing a water-tight agreement, it was also not fully cooperative because it was part of the consortium that included Old Mutual and CBZ which wanted to take over Telecel on its own. Government ended up unceremoniously abandoning negotiations with Nssa and sourced funds from local financial institutions and other funders, which it is still unwilling to name.
The acquisition of the stake owned by EC has been complicated by the infighting over shareholding, although information from Telecel sources shows that on March 27 a local legal firm engaged EC shareholders, James Makamba through Kestrel Corporation, Jane Mutasa (Indigenous Business Women Organisation), Leo Mugabe (Integrated Engineering Group) and Phillip Chiyangwa (Affirmative Action Group), who had apparently agreed to sell their stake at an agreed price.
Telecel sources say the last valuation of the company by Deloitte Touche two years ago shows that Telecel was worth US$101 million and as a result the EC investors wanted US$40 million for their stake.
Brainworks apparently wanted to acquire the 40% stake with funding from South Africa’s Nedbank for US$20 million, while Kingville offered US$40 million.
However, EC investors wanted US$52,4 million, including 30% management fees pegged at 5% of gross revenues of US$140 million. Government is unwilling to pay EC US$52 million for the 40% stake.
Contacted for comment yesterday, Nssa chairperson Robin Vela said: “It’s a very simple deal: The acquisition of Telecel equity will be value for money for us. It’s a value deal to deliver cash-flow to our stakeholders.”
Asked how far the negotiations have gone, he said: “It’s early days yet and in any case we don’t even know whether this will proceed further or not.”
Mandiwanzira said negotiations were still in progress.
“Negotiations are still in progress but we hope they will be concluded soon,” he said.
Telecel spokesperson Francis Chimanda said: “We don’t have a comment. It’s a shareholders’ issue and only the shareholders can comment.”
However, the Independent has it on good authority that the deal has been closed.