TSL Ltd moved to avert a potentially explosive showdown at an extraordinary general meeting (EGM), which was scheduled for this week, to consider a proposal that would have seen the issuance of new shares amounting to 10% of the group’s total issued share capital with a market value of US$21,4 million for executive remuneration.
Chris Muronzi/Melody Chikono
This comes amid concerns from minorities that the proposal would have a dilutive effect on their shareholding.
In a notice this week, TSL said it had cancelled a planned EGM scheduled for today to consider the Executive Share Appreciation Rights Plan, a scheme that would have seen the issuance of a total 35,7 million new shares.
The stock, which was on Wednesday trading at a price of US$0,60, had a market value of US$214 million.
“The directors of TSL limited are proposing that the company sets up the 2018 TSL share settled Executive Share Appreciation Rights Plan. The proposal is part of TSL’s long-term reward strategy, which seeks to align the interest of executive employees to those of the company’s shareholder. The share appreciation rights are designed to give the executives an incentive to advance the interests of the company for the benefit of the company for the benefit of all stakeholders in TSL Limited,” the EGM notice read.
The notice did not reveal the identity of the executives who stood to benefit from the scheme.
The group claims this proposal has been necessitated by the need to motivate executive directors of the group.
The proposal to award a hefty bonus to executives has raised eyebrows in the market given the company’s recent earnings and proportion to the proposed incentive and the paltry dividend pay-outs to shareholders.
In the full-year to October 31 2017 (FY17), TSL reported a net profit of US$4,25 million and declared a dividend of US$1 million. Revenues in the same period stood at US$50,5 million, a 7% increase on FY16.
Although the directors said the dilutive effects of the share appreciation rights would be offset by the new shares, increased share issues are generally dilutive and lower investor interests in a stock.
Market regulators generally compel companies that have publicly traded securities to report the dilutive effect of share issues when they present their results as diluted earnings per share (EPS).
Diluted EPS is a calculation used to gauge the quality of a company’s earnings per share if all convertible securities — including share issues such as the proposed share appreciation rights — are exercised.
EPS is the portion of a company’s earnings allocated to each outstanding share of common stocks.
A new stock issuance also increases the denominator and lowers a company’s profitability against every outstanding share.
This comes at a time other companies are buying back stock to make their shares more attractive.
First Mutual Properties and Zimplow Ltd are among some of the companies on the stock exchange that have bought back their stock.
“The benefits include but are not limited to: attraction, retention, motivation and incentivisation of executive employees and the alignment of the executives’ long-term interests with those of shareholders; the building of long-term managerial commitment to achieve sustainable business results and they reinforce, net of behaviours that add value to the business in the long term,” the notice added.
Although TSL did not say why it cancelled the EGM, sources said the company feared protests from other shareholders. The EGM has been rescheduled to March 2019.
Ordinarily, the company had to convene an annual general meeting for the matter.
An EGM is a meeting specially called to discuss a particular item of a company’s business, usually one of pressing importance.
Jacob Mtisi, a shareholder activist, said the cancellation of the EGM shows that common sense has finally prevailed at TSL.
“On the 15th of November 2018 I wrote an email and I am glad (cancellation of EGM). Over the years company executives who are supposed to safeguard our companies are becoming dangerous to the existence of the same companies, especially where weak board oversight is prevalent. What is an Executive Share Appreciation Right Plan? TSL endeavours to justify this but closer scrutiny reveals it is an opportunity for directors to have significant shareholding, or majority shareholding, indirectly, in TSL at the expense of minority shareholding and non-executive employees,” he said.
Mtisi said TSL should have gone for an Employee Stock Option (ESO) that allows all employees the right to buy a portion of the company’s shares at a predetermined price for a specific period.
He said the whole exercise was qualitative and “fraught with subjectivity” with no demonstration of the would-be quantifiable benefit accruing to the stockholders other than the beneficiaries of the share option scheme.
“No one seems to definitively declare that by giving away 10% of the company, the share price will increase by what percent and what will happen to the net revenues over five years and what dividends will be guaranteed,” he said.
Mtisi says TSL executive directors and management are well-remunerated and well-resourced to buy shares through the Zimbabwe Stock Exchange like any other individual.
The TSL head legal, compliance and company secretary James Muchando, was yet to respond to questions at the time of going to print.