Zimbabwe’s largest mobile network operator, Econet Wireless’ share price plunged 48,8% a fortnight after the company announced plans to raise US$130 million through a rights issue at a severely discounted price.
This comes as Econet and Reserve Bank of Zimbabwe reached an agreement to protect small shareholders.
In a statement, it said: “Econet shall open a Rights offer account with a local receiving bank into which those shareholders designated as resident shareholders in the register of members of Econet Wireless Zimbabwe Limited shall deposit the proceeds of the rights offer using cash, bond notes, or electronic money in accordance with the rights offer timetable as published in the company’s circular dated 17 January 2017.”
“In exchange for the amount paid by the resident shareholders into the company’s account with a local receiving bank, the underwriter shall pay the equivalent of the amount contributed by the resident shareholders and on behalf of the resident shareholders to the international receiving bank, Afreximbank in accordance with the terms of the circular.”
Econet unveiled plans to raise capital via a rights issue at a discounted price of US$0,05 at a time the company’s share price was trading at US0,30. This effectively discounted the stock by as much as 83%.
As of Wednesday, Econet’s share price had plunged by 48,8% to US15,55 cents with a market capitalisation of US$141 million. The company opened the year with a market capitalisation of US$272,7 million.
The share price as of Wednesday closed the week at trading at a price of US18 cents.
The figure represents a decline of over US$131 million in less than two weeks. Econet stock fell a massive 10% during the last week of January.
On a year-to-date basis, the company stock plunged 48,8%.
On Wednesday, the company’s share price plunged by a further 7,8%. Effectively Econet has lost value to the tune of US$131 million as at Wednesday.
Analysts say the price discount has caused the market to gravitate towards a rights issue price, adding the share price could suffer even further.
Econet intends to plough the rights issue proceeds to extinguishing a debt.
Econet owes US$13,2 million to China Development, US$75 milllion to Ericsson Credit AB, US$15 million to African Export and Import Bank (Afrexim) and around US$6 million to the Industrial Development Corporation.
Econet is in the eye of the storm after the Zimbabwe Stock Exchange (ZSE) on Tuesday last week summoned the group over contentious issues in its US$130 million rights offer amid concerns by the Securities and Exchange Commission of Zimbabwe that the capital-raising initiative could result in the unfair treatment of local investors.
However, Econet dispelled fears that local investors would be disadvantaged.
“Those resident shareholders who follow their rights by paying into the designated local account shall be deemed as having discharged their obligations as set out in the rights offer circular and shall be entitled to the issue and allotment of their rights offer shares in accordance with the terms of the rights offer circular,” Econet said in the statement.
“In the event that any resident shareholder sells their rights offer shares to non-residents, the foreign currency thereby generated shall be remitted to the Reserve Bank of Zimbabwe and allocated towards the remittance of the money due to the underwriter.
“The Reserve Bank of Zimbabwe shall agree with the company on a schedule for the remittance of the money held on behalf of the underwriter over the period during which the foreign debt was repayable and in equal instalments.”
The mobile network operator added that: “In the circumstances, members are advised that the company’s Extraordinary General Meeting shall proceed as published in the circular Members are advised to disregard any notices to the contrary that are not coming from the company.”