THE Zimbabwe Stock Exchange (ZSE) on Tuesday summoned mobile network operator Econet Wireless Zimbabwe over contentious issues in its US$130 million rights offer after the country’s capital markets regulator, the Securities and Exchange Commission of Zimbabwe expressed concerns that the capital-raising initiative could result in the unfair treatment of local investors.
Econet is currently seeking shareholder approval for a capital raise of US$130 million by way of a rights offer of ordinary shares and linked debentures in order to facilitate the servicing of its foreign debt. Shareholders are expected to vote for or against the rights offer on February 3.
The weighted average interest rate on long-term borrowings for the company as at February 29 2016 was 7,1% (2015: 7,3%).
In addition to the all-inclusive rate of borrowing of 7,1% the group pays guarantee fees of 6% per annum to Econet Global Limited for the guarantee provided on the multi-creditor loan facilities.
The rights offer will be fully underwritten by Econet Global Limited which holds 30,02% shareholding in Econet Wireless Zimbabwe.
Should the capital-raising initiative get a green light from shareholders, it will need approval from the Reserve Bank of Zimbabwe for the proceeds of the rights offer to be paid by each participating shareholder into the debt service account held by EWZ with the African Export and Import Bank outside Zimbabwe and for the proceeds to be applied by the company to repay its secured loan obligations.
Sources familiar with the developments told the Zimbabwe Independent that the SECZ, which sits on the ZSE listing committee as an ex officio member, raised issues of unfair treatment of local investors in following their rights as well as the rationale behind the conversion of the company’s Class A shares into ordinary shares.
This, sources said, resulted in Econet being summoned by the listing committee this week to explain issues relating to exchange control and the funding structure of the capital raise.
SECZ chief executive Tafadzwa Chinamo confirmed that the capital markets regulator had raised some concerns with ZSE which, in turn, instructed Econet to work on the issues. Questions sent to ZSE chief executive Alban Chirume were not responded to at the time of going to print.
“Investor protection is one of our mandates as the Securities and Exchange Commission of Zimbabwe. We want to ensure fair treatment to all shareholders. As was first presented by the company (Econet), we felt that the local investors that do not have access to foreign currency would be denied an opportunity to follow their rights. So the company must address that,” Chinamo said.
“I don’t know how far they have gone in addressing those issues but I can speak on the issues we raised. We understand the challenges that companies are going through but that should not be the reason to override shareholders’ interests.”
Analysts have also raised eyebrows over the the urgency of the capital raise, saying it comes well before the due date of the debt with some saying this could be a plot to buy out minority shareholders given the current foreign currency shortages in the market.
They also queried why Econet Global did not bail out EWZ given that the debt was secured and the group was receiving guarantors’ fees which is above market rates.
In its abridged circular published last week, Econet said the rights offer shares are priced at a discount to the market, in order to provide an incentive for members to invest capital into a deflationary and illiquid environment where it is extremely difficult to withdraw cash in United States dollars, or to make foreign payments.
“Shareholders are being given the opportunity to earn a fixed US Dollar return of 5% per annum by subscribing to the linked debentures. The debentures allow the company to defer a debt settlement, which is due and payable within the next 12-18 months by a further 4-5 years.
This will afford the company an opportunity to accumulate foreign currency resources to fund the redemption of these Debentures at maturity.
“It also provides an important incentive for shareholders to participate in the rights offer and the linked debentures while mitigating the dilutive impact of the Rights Offer on those shareholders who may not have access to external US dollar resources with which to follow their rights.
Subject to the availability of United States dollars with which to make external payments, it is the opinion of the directors that the company will be able to mobilise sufficient resources over the six-year period to redeem the linked debentures.”