Zimbabwe’s largest mobile network operator, Econet Wireless Zimbabwe’s share price gained 20% on Wednesday trade as fund managers and investors discount the negative sentiment arising from the company’s plans to raise US$130 million through a rights issue at a severely discounted price.
Econet’s share price surged 20% on Wednesday to close at 24 US cents.
Wednesday’s gains were however not enough to offset the company’s losses to date. On a year-to-date basis, Econet is still down 20%.
Analysts say the gains in the Econet share price is corrective after the company addressed concerns in its initial circular.
“The company’s price took a battering after the release of its rights issue announcement due to some contentious clauses in the initial circular. The contentious clauses have since been amended. Naturally, what is happening now is just a re-rating of the price,” an analyst said.
Econet announced 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 last 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 use the rights issue proceeds to extinguish a debt.
Econet owes US$13,2 million to China Development Bank, US$75 million to Ericsson Credit AB, US$15 million to African Export and Import Bank (Afreximbank) and around US$6 million to the Industrial Development Corporation. This comes as Econet and Reserve Bank of Zimbabwe reached an agreement to protect small shareholders.
In a statement last week, the company 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 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.