Legacy debt strangles TelOne’s investment prospects

LIVINGSTONE MARUFU

TelOne (Private) Limited is struggling to attract fresh capital for critical infrastructure expansion projects, as legacy debts inherited from the defunct Posts and Telecommunications Corporation (PTC) continue to weigh heavily on the company’s balance sheet, threatening its viability and scaring away potential investors.

The state-owned telecommunications firm remains saddled with legacy loans amounting to ZWG10.05 bn (US$389 m), a financial burden that has left the business operating in a net liability position of ZWG32.2 bn as of December 31, 2024.

Speaking at TelOne’s 11th Annual General Meeting (AGM) this week, Chief Executive Officer Engineer Lawrence Nkala warned that unless urgent action is taken to restructure the company’s balance sheet, TelOne’s ability to attract new investment and execute its network modernisation ambitions will remain severely constrained.

“TelOne inherited loans worth ZWG10.05 bn from PTC. The legacy loan book has remained an encumbrance to TelOne’s balance sheet resulting in the company operating in a net liability position of ZWG32.2 bn as of December 31, 2024. This has hindered TelOne’s efforts to attract fresh capital required for network modernisation and digitalisation projects,” Nkala told stakeholders.

In an effort to address the situation, TelOne, through its shareholder Mutapa Investment Fund, continues to pursue a debt warehousing arrangement to free up its balance sheet and make it more attractive to investors.

Nkala also highlighted persistent liquidity challenges throughout the year, which have increased counterparty risks and severely constrained the company’s working capital and its ability to fund capital expenditure.

Further compounding the problem is the significant debt owed to TelOne by the Government of Zimbabwe, one of the company’s largest clients. As of December 31, 2024, the government’s debt to TelOne had ballooned to ZWG325.3 bn, up from ZWG128.8 bn (restated) at the end of 2023.

“As at the date of the Annual General Meeting, the Government of Zimbabwe was owing TelOne ZWG517.2 bn which was equivalent to US$19.2 m. TelOne continues to engage the Government of Zimbabwe to timeously settle its dues through various settlement options,” Nkala said.

Government officials present at the AGM acknowledged the delay in settling obligations and promised to clear a significant portion of the outstanding amount by June 30, 2026.

Despite these headwinds, TelOne recorded inflation-adjusted revenue of ZWG2 bn for the year ended December 31, 2024, representing a 20 percent increase from the previous year. The revenue growth was largely driven by organic expansion across several business segments including wholesale, enterprise, data centre and cloud solutions, and home broadband services.

The wholesale business segment achieved sales of 81.8Gb by year-end, marking a 102% growth, while the enterprise segment grew by 26 percent to 25.87Gb. Data centre and cloud solution demand increased by 23% in terms of rack space occupancy and cloud storage requirements. Home broadband subscribers increased by 5% to 147,876, with an average revenue per user of US$12 per month.

However, inflationary pressures and rising costs linked to infrastructure repairs and depreciation expenses eroded profitability. Operating expenses surged to ZWG1.4 bn in 2024, up from ZWG986 m recorded in 2023.

“The increase in costs was also attributable to network repairs emanating from network vandalism and depreciation expense due to an interim revaluation that was conducted during the course of the year,” Nkala said.

Despite these challenges, TelOne recorded Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) of ZWG416 m for the period.

Nkala said the company continued to make notable capital investments using internally generated funds to support its strategic drive in the absence of equity and loan funding.

“Through its own internally generated funds, the company made notable capital investments in order to support its strategic drive. Key projects embarked on include base station deployment efforts continued with the commissioning of 29 new sites on the LTE network, connection of 12,000 homes to its Fibre-to-the-Home (FTTH) network, a total of 305sqm Omni Contact Centre completed with 102 seats, the business has implemented Security-as-a-Service (SECaaS) and deployed various digital platforms and upgraded various core-systems,” Nkala said.

The company increased its equipped internet bandwidth capacity from 165Gb in 2023 to 195Gb in 2024 to support business growth and improve the client experience. Network availability remained strong, with uptimes of 98.41 percent on the backbone, 99.99 percent on the core network and 97.83 percent on exchange nodes. However, voice minutes of use declined by 13 percent to 244,361,216 minutes, reflecting increased use of over-the-top voice services and the negative impact of rampant network vandalism.

TelOne continues to grapple with widespread infrastructure vandalism, which has become a major threat to its service delivery capabilities. Rising copper prices and economic hardships have fuelled a surge in cable thefts and the destruction of critical network equipment across the country.

“Rampant vandalism, targeting over 60 percent of TelOne’s infrastructure, is significantly impacting the business’ ability to deliver quality services. In the year 2024, a total of 482 vandalism incidents impacted 61,658 clients, leading to financial losses. The estimated costs for restoration amounted to US$766,119, while revenue losses were estimated at US$589,634,” Nkala revealed.

Looking ahead, TelOne is aiming to capitalise on the growing demand for telecommunications services by expanding its network infrastructure through intensified LTE and FTTH rollout. The strategic move is expected to drive revenue growth and improve customer satisfaction by providing better service coverage and reliability.

Management remains focused on enhancing its collections through various debt recovery strategies to improve liquidity and ensure adequate funding for network expansion projects. However, Nkala stressed that meaningful progress hinges on resolving the legacy debt issue that continues to suffocate the company’s financial health.

“Freeing up the balance sheet is critical to restoring investor confidence and unlocking the capital needed to modernise our network and expand our service footprint,” he said.

The success of these efforts will depend largely on the government’s ability to settle its dues and the effective implementation of the debt warehousing strategy. Until then, TelOne’s ambitions for growth and digital transformation will remain shackled by the legacy of debts inherited from a bygone era.