CFX Financial Services this week pulled a shocker in the banking sector after it appointed the Peoples Own Savings Bank (POSB) as the underwriter to its
rights issue opening early next month.
This comes soon after businessdigest revealed last week that the financial institution had revised upwards the amount it intended to raise through the rights issue, from $1 billion to $1,8 billion.
The mega-rights issue is likely to be too expensive for many of the banking institution’s fringe shareholders, including government.
The move effectively means that the acquisitive Zimre Holdings, which had been tipped to underwrite the issue under an arrangement which would have given it a foothold in CFX, has fallen by the wayside.
POSB, itself a cash-rich institution, now stands a chance to pick up shares in the bank that would not have been taken up
by respective shareholders during the rights issue.
This would be the first time that the 102-year old POSB, which is wholly government-owned, has underwritten any rights issue in the history of the local bourse.
CFX Bank managing Simon Monckton yesterday said they had settled for POSB to fully underwrite the rights issue after talking to several potential underwriters.
“We talked to a lot of people (companies) but eventually we settled for POSB,” Monckton said.
POSB is expected to snap up shares not taken up by shareholders during the rights issue. Government owns 15,9% in CFX while 39% of the shareholding in CFX is in the hands of depositors.
Businessdigest estimates that the $1,8 billion rights issue could be undersubscribed by at least 20%.
The cash-strapped government, which holds its stake in CFX through Allied Financial Services, seems unlikely to follow its rights.
Government is battling to raise cash to recapitalise other financial institutions in which it has significant stakes.
However, government is expected to maintain an overbearing influence on the group through its ownership of the POSB.
POSB, formerly the Post Office Savings Bank, was established in December 1904 and commenced its operations through the Post Office infrastructure network.
Since its creation, the bank operated as a statutory fund with no legal entity status.
In 1965 the Post Office Savings Bank Act (Chapter 249) was promulgated providing for the administration of the savings bank by the Post and Telecommunications Corporation on an agency basis.
This position remained until April 1 2001, when a new Act, the People’s Own Savings Bank of Zimbabwe Act (Chapter 24:22), was promulgated, establishing the bank as a corporate body thereby effectively de-linking it from the Post and Telecommunications Corporation which has been unbundled into three commercial operations.
Indications are that the majority of CFX depositors, whose ownership of CFX shares was made through a conversion of their deposits into shares earlier this year, were also unlikely to follow their rights.
This means POSB will mop up all CFX shares renounced by shareholders during the rights issue, giving it a foothold in the banking institution.