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Happiness Zengeni Business Editor
A SCAM to overvalue Telecel Zimbabwe has been exposed amid reports that the company is practically bankrupt with no ability to meet its short-term and long-term liabilities.

In addition, the company does not have an operating licence, has ageing assets and as such the $50 million valuation and not $200 million, is a true reflection of what the company is worth, analysts have said.

Barclays Bank International, who are selling the other 60 percent on behalf of Vimpelcom, have valued the company at $200 million which means the 40 percent shareholding that Brainworks Capital is acquiring should be $73 million.

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• Editorial Comment: Telecel Zim hoist by own petard

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The 60 percent which is up for sale is priced at $127 million.

In a development akin to the arbitrage (burning) of the hyperinflationary era, Dr Jane Mutasa claims that the investment in Telecel through Empowerment Corporation has increased to $200 million.

However, facts on the ground show that the business is worth $50 million or even less.

Financial analyst Respect Gwenzi said while the business continues to trade as if everything is normal, this is far from the case.

He said over the years, the company has effectively lacked leadership and this has been a major contributor to the value destruction that the company has experienced.

“While the earnings potential of the company are huge, the fact is that there has been a lot of value destruction mainly on the back of inefficiency and management ineptitude.

“Telecel has been operating like a tuckshop and as such it has been starved of resources for re-investment.”

Mr Gwenzi said Telecel compared to the other mobile network providers has a lower earnings before interest, taxes depreciation and armotisation (EBITDA) and net income margin.

Telecel Zimbabwe 40 percent shareholders –the Empowerment Corporation – are currently embroiled in a wrangle over the sale of the stake to Brainworks. Telecel remain’s ECs only assets since inception in 1998.

An analysis done by a local financial data provider notes that from the foundation of its incorporation Telecel has been a highly leveraged business and as such this has been a major impediment to the growth of the company over the past few years.

“To just give you an indication of how stressed the business was, in 2010 the company had a closing cash balance of $3.5million. One would expect that number to be roughly within range of 25 percent of Econet’s cash flows given the proportional sizes of both companies were we to do a comparable analysis of the two companies using the subscriber base as the basis of our analysis.

“This means using the subscriber base as a basis, Telecel should have been holding a cash pile of roughly $17million. At those numbers the company would have been looking at a valuation of $200million with an EBITDA of $83million if we use Econet multiples. But then this is not the case. Telecel had an EBITDA of $26million a mere fraction of its true potential,” says the research note

The analysis says that there has not been any equity capital raise in the last four years and if we were to consider that the company has had long-term liabilities of over $66million and short term liabilities of $25million then there is nowhere at such levels of gearing would the company have turned a corner and be valued at anything over $50million.

“If we look at those numbers and look at the current trends using a comparable analysis with Econet which has publicly available numbers we can safely bet that a valuation of $50million is actually a bonus if we consider the fact that the company would be required to fork out over $130 million for an operating license, its gearing and other factors,” reads the analysis.

Information gathered by The Herald shows that the depletion and stripping of cash in Telecel through various instruments has been to such an extent that the company was unable to pay the licence renewal fees and has had to negotiate a five year payment plan. All the cash that has been generated since inception in 1998 has been stripped out from the company to a point where it is running on an overdraft of $500 000.