Econet, TN Bank share swap above board

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ECONET Wireless Zimbabwe (Econet) and TN Bank apparently acted within the listing rules when they made an offer to minority shareholders to take over the bank in spite of an outcry from some sections of the market.

Report by Staff Writer

This week, TN Bank issued a second circular offering minority shareholders a share swap of one Econet ordinary share for every 28,79 TN Bank ordinary shares held or a cash alternative of 15,91 cents per one TN Bank ordinary share.

Initially, the group issued an offer to shareholders setting an extraordinary general meeting for January 18, to seek approval for the delisting of the bank and the manner in which the delisting will be implemented. The process will be implemented through a share buy-back made at a price not less than 5% of the weighted average of the market value of the shares and should not exceed 20% of the company’s issued ordinary share capital. Econet sent the draft circulars for approval by the Zimbabwe Stock Exchange (ZSE) on December 6, 2012 through Bethel Equities (Private) Limited.

ZSE requested the offer be made directly by Econet rather than through Bethel Equities, adding the offer was conditional upon Econet shareholders’ approval because it deemed the transaction a category one according to the listing rules due to the capital requirements of TN Bank Ltd in the next 12 months.

However, Econet argued the circular issued should be a TN Bank Ltd circular and as such, it was in fact TN Bank that needed permission to publish the circular.

They further maintained the transaction was not a category one transaction and therefore the group could not make the offer conditional upon Econet shareholders’ approval. A category one transaction compels a company to inform or seek approval from shareholders if the value of the investment is above 30% of the company’s total worth. Econet said its board of directors was fully mandated to enter into transactions which are below the threshold required to issue a press announcement, let alone call for a shareholder meeting. The transaction is immaterial on the part of Econet in terms of value.

“Based on this, Econet will not call an EGM to consider such a transaction because the company is not under any obligation to do so under the listing rules or the Companies Act,” said Econet in a letter to the ZSE.

Econet said it felt the decision by the ZSE to withhold permission for TN Bank Ltd’s board to publish the circular to its shareholders was negatively affecting the interests of Econet and its shareholders.

Heavy criticism of the transaction came after the first circular was published with analysts saying the offer had been made on spurious grounds. Some analysts say the offer does not benefit minority shareholders while some said the offer had shown corporate governance deficiency on the part of the mobile phone operator.

Tawanda Nyambirai, believed to be holding 30,46% of TN Bank’s total issued share capital, has already indicated his intention to accept the offer.

The results of the offer will then determine the next move for the group. The offer opened on Monday and will close on January 31. According to ZSE listing rules, if Econet Wireless acquires enough shares to control more than 70% of the bank or it has less than 300 shareholders post the transaction, it will be de-listed from the exchange. Should this not be the case, the company can call for an EGM of shareholders to consider delisting the company.

If minorities take up the offer, Econet will consolidate the results of the bank at their next results but because the investment (bank) does not make up 30% of the company’s capital there will be no need for the telecoms group to call for an EGM.

Econet acquired 45% of the issued ordinary share capital of TN Bank in July 2012. This shareholding enables Econet to control the strategic direction of TN Bank.

The Reserve Bank of Zimbabwe recently announced increased capital levels for banks with all commercial banks required to have a minimum capital of US$100 million by June 2014. Econet by virtue of its size has the ability to raise the required capital.

The Ecocash partnership between TN Bank and Econet shows there is great potential for synergies between the two companies.
The transaction offers shareholders an opportunity to diversify their risk by getting shares in a mature company with interests in telecommunications and banking.

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