Econet to get some relief as debentures mature

Listed telecoms giant Econet Wireless will now enjoy some relief on the profitability front as foreign exchange losses are expected to taper off following maturity of the US$30 million debenture debt, analysts have said.

The group’s financial performance has over the years been weighed down by foreign exchange losses stemming from foreign currency-denominated obligations and debentures that matured at the end of April 2023.

Econet was unable to secure adequate foreign currency from the Reserve Bank of Zimbabwe’s weekly auction and interbank market for the purpose of redeeming the debentures.

But on a positive note, the debentures will be redeemed during the financial year 2024 (FY24).

“We should see a significant difference in foreign exchange losses in FY24 in our view,” said research firm IH Securities.

But like any other business operating in the country, the telecoms giant will not be immune to the challenging environment.

According to IH Securities, minimal US dollar collections and the significant Zimbabwe dollar exposure of the business from a revenue perspective in high inflation, volatile exchange rate environment, will continue to significantly impact the company’s financial performance and the ability to invest in new equipment.

The telecoms sector relies on imports for equipment and software for operating purposes.

Another challenge unique to the sector alone is the misalignment in the review of tariffs relative to inflation and real costs, which will continue to impact revenue and profitability creating downside risk to the business.

Tariffs have continued to lag, threatening the long-term viability of the local telecoms sector and making it difficult for the sector to invest appropriately to meet customer expectations.

Although voice and data volumes increased by 19 percent and 58 percent in financial year 2023, respectively, these improvements were offset by sub-inflation tariffs resulting in a decline in revenue in real terms for the year.

The Postal and Telecommunications Regulatory Authority of Zimbabwe (POTRAZ) granted the sector three tariff adjustments of 61 percent each and a fourth adjustment of 50 percent during the year.

“Until a more dynamic pricing framework is put in place by POTRAZ, this challenge is likely going to persist,” said IH Securities.

Due to growing adoption of digitalisation in the country, which was also spurred by the Covid-19 pandemic, broadband and data services demand across the country continues to increase which is positive and a clear pathway for growth.

To meet the growing demand for both voice and data traffic, Econet commissioned eighty new base stations providing additional coverage and capacity.

The business invested US$66 million towards the network modernisation programme.

Network expansion and upgrades remain imperative to support business sustainability, which has been hampered by several years of under investment, due to ongoing macro-economic challenges.

Whilst Econet does generate some foreign currency from its operations, this is being deployed to pay for essential mobile network and related technology upgrades and expansion.-herald