Etisalat-controlled Zanzibar Telecom reported to be in US$100 million loan default

A bond prospectus issued by Etisalat has revealed an unusual debt problem with its subsidiary in Tanzania.

The bond prospectus was sent to investors as Etisalat is looking to raise funds to finance its US$5.6 billion acquisition of a 53 per cent stake in Maroc Telecom. As is usual with these documents, it lists any known risk factors that could affect the company.

Here it was revealed that an unidentified bank has issued a demand against Zanzibar Telecom for the repayment of a US$96 million bank loan after the local mobile network defaulted on payments.

Zanzibar Telecom (Zantel) has been struggling for some time against Vodacom and Airtel, and saw its customer base shrink last year, despite operating in a growing market with untapped potential customers.

"Zantel is currently in non-payment default under a bilateral bank facility," the bond prospectus stated, without elaborating on the details. It did warn though that "unless this default is remedied, the lender may take enforcement action against Zantel".

It is thought that Zanzibar Telecom is losing money. Although Etisalat does not break out the numbers in its financial statements, the clue is that the mobile network was left off the list of profitable operations.

Etisalat owns a 65 per cent stake in Zanzibar Telecom, with the rest evenly split between the government and another investor, Meeco International.

It ended last year with just 1.8 million customers, down sharply on the 3.1 million a year earlier. A SIM card registration push was blamed for most of the decline, although the shrinkage was lower at the rival networks.