A San Francisco based investment vehicle Augustus Capital is set to take over Telecel Zimbabwe in a deal worth a total of US$175 million under the mobile operator’s corporate rescue programme, according toTechnoMag.
The acquisition will see Telecel Zimbabwe partnering with a major regional telecoms player, a development expected to reshape the competitive landscape of Zimbabwe’s telecommunications sector.
Augustus Capital was established as a special purpose investment vehicle specifically to participate in the restructuring and proposed acquisition of Telecel Zimbabwe under the Corporate Rescue Proceedings, Techunzipped understands. Under the arrangement, Mutapa Investment Fund, the country’s sovereign wealth fund, will cede the bulk of its 45% stake in Telecel, retaining just 15%, while Augustus Capital absorbs the remaining 40% previously held by local consortium Empowerment Corporation.
To fund the transaction, the investment vehicle has secured a capital financing facility with Ecobank of up to US$127 million, which will become available once the Corporate Rescue Plan is successfully adopted, supporting both the implementation of the deal and Telecel’s ongoing operations.
Sources close to the transaction said that Augustus Capital has entered into contractual arrangements with ZTE and Satewave Technologies for the supply of network equipment, valued at US$60.5 million, and network rollout services, valued at US$28.5 million, respectively, as part of the acquisition.
Under the new arrangement, Telecel staff will return to work, with employees remaining in the Company’s employ and entitled to their salaries and other accrued benefits.
Once approved by the requisite majority of preferred and concurrent creditors under Section 144(2) to (4) of the Insolvency Act [Chapter 6:07], the Corporate Rescue Plan becomes legally binding. A corporate rescue plan is, in essence, the business proposal setting out how a financially distressed company will be resuscitated. It includes cash flow projections demonstrating how pre-commencement creditors will be repaid the legacy balances owed as at the date the rescue proceedings began.
The plan provides a legally binding framework within which Telecel Zimbabwe will be sold and allowed to restructure and realign its operating model to optimise performance and continue operating sustainably post the Adoption Date. It is mandated to restructure legacy debt and repay creditors in terms of Augustus Capital’s bid and a subsequent Implementation Agreement, within approximately 24 months of the Adoption Date.
The rescue plan operates under Zimbabwe’s Insolvency Act, with Section 126 imposing a moratorium that shields Telecel from legal action and enforcement proceedings for the duration of the process. The moratorium, read together with Section 142(2)(b)(i) of the Act, prohibits any legal proceedings, including enforcement action, from being commenced or continued against Telecel Zimbabwe or its property while the Corporate Rescue Proceedings are underway. In practice, this means no party may pursue the Company in any forum over non-payment of debts during this period unless the Corporate Rescue Practitioner or the High Court consents. The intention of the moratorium is to give the Company breathing space and the best possible opportunity to develop and implement the Corporate Rescue Plan successfully.
Telecel Zimbabwe employees will be paid any money or remuneration relating to employment that becomes due during the Company’s Corporate Rescue Proceedings, drawn from the Company’s available free residue after liquidation costs and the Practitioner’s fees and expenses are settled, but ahead of other Preferent Creditors. By contrast, TechnoMag notes that in the event of liquidation rather than adoption of the rescue plan, all jobs would be lost immediately, and employees would be entitled to a maximum of approximately three months’ salary, subject to available funds, with any remaining balance treated as a concurrent creditor claim.
On regulatory obligations, POTRAZ is set to receive a dividend of US7 cents in the dollar on outstanding licence fees relating to past periods, along with payment in full of future licence fees, to be settled in equal annual instalments over approximately eight years following a one-year grace period. TechnoMag understands the total recovery to POTRAZ under the proposed plan is estimated at approximately 61 cents in the dollar, a significantly better outcome than would be achieved under liquidation.
Shareholders are also set to benefit relative to a liquidation scenario. Mutapa Investment Fund and Empowerment Corporation are expected to receive US$1.00 and US$0.50 respectively for their shareholdings, compared with a nil return under liquidation. In addition, shareholders with debt exposure in Telecel Zimbabwe, through shareholder-related loans, will receive a distribution of US7 cents in the dollar and retain a 15% equity interest in the restructured company.
A creditor recovery breakdown reviewed by TechnoMag shows the scale of obligations being addressed under the plan:
- Mutapa Investment Fund — shareholder loans: owed US$97.7 million, recovering US$6.8 million
- POTRAZ — historical licence fee arrears: owed US$40.2 million, recovering US$2.8 million
- POTRAZ — future licence years: owed US$54.8 million, recovering US$54.8 million in full
- Huawei — secured claim on network equipment (2010–2012): owed US$10.7 million, recovering US$4.3 million
- Trade creditors — suppliers and service providers: owed US$9.8 million, recovering US$4 million
- ZTE — equipment supplier: owed US$8.5 million, recovering US$3.4 million
- Huawei — unsecured balance: owed US$4 million, recovering US$1.6 million
- Statutory bodies (ZIMRA, NSSA, pensions): owed US$691,000, recovering in full
- Employee salaries — older amounts owed to staff: owed US$257,000, recovering in full
In total, Telecel Zimbabwe owes approximately US$227 million against creditors, with the rescue plan projecting recoveries of roughly US$77 million.
On the operational side, the plan assumes planned capital expenditure of US$89 million for the network upgrade programme. A 12-month grace period is factored in before revenue benefits are realised, comprising six months for equipment manufacture, shipping and delivery to Zimbabwe, followed by six months for the rollout of approximately 1,200 sites.
The projections assume Telecel Zimbabwe will continue operating under its existing telecommunications licence, which has a remaining term of approximately seven years.
