Econet in $130m rights offer

ECONET Wireless Zimbabwe plans to raise $130 million in capital through a rights offer of ordinary shares and linked debentures in order to facilitate the servicing of obligations to its foreign lenders, according to an abridged circular to shareholders.

BY TATIRA ZWINOIRA

In the circular released yesterday, Econet said Econet Global Limited, who hold 30 025 of the local entity’s issued share capital, are the underwriters.

The offer was made to members of Econet proportional to their respective existing shareholdings of 1 082 088 944 ordinary shares plus 263 050 614 class A shares at a subscription price of 5 cents per share on the basis of approximately 82 ordinary shares for every 100 shares already held.

“Each right of share offer shall be linked to a redeemable accrual debenture with a subscription price of 4 665 United States cents as a coupon rate of 5% per annum,” Econet said in the circular, adding an extraordinary general meeting on February 3 to approve the capital raise will be convened.

Econet said the critical shortage of foreign currency in Zimbabwean bank’s overseas nostro accounts and the flow of funds that those banks can export to fund their externally held accounts had diminished materially.

“This has made it extremely difficult for the company and its subsidiaries to service their financial obligations to lenders and creditors outside Zimbabwe. To avoid defaulting on its loan obligations, the company intends to raise foreign currency from its members by way of a rights offer of shares and linked debentures.”

Analysts say an infusion of cash derived from the sale of stock can lead to the company growing its business without having to borrow from traditional sources and, thus, avoid paying the interest required to service debt, which can result in a better bottom line.

“With more cash in the company coffers, additional compensation may be offered to investors, stakeholders, founders and owners, partners, senior management and employees enrolled in stock ownership plans,” a financial expert said.

The Econet rights offer comes after Information, Communication and Technology and Courier Services minister Supa Mandiwanzira claimed the company faced financial challenges, in a spat over data tariff hikes.

Mandiwanzira also accused Econet of being greedy.

In a statement released last week, Mandiwanzira said Econet top management visited his offices, not only once, pleading for him not to approve proposals to decrease tariffs and that they be increased instead because their business was suffering.

The statement went on to say Mandiwanzira was told by the Econet top brass that the business “was on the verge of being called out by European Banks from which they have received loans”.

In emailed responses to NewsDay concerning the data tariff spat, Econet spokesperson, Lovemore Nyatsine said their efforts remained focused on ensuring that they act in the best interests of their customers and shareholders.

The spat may have cost Econet some of its mobile subscribers due to its closest competitor, NetOne, reporting a surge in clients a week after the former increased its tariffs, before reverting to the old ones.

3 Comments

  1. i doubt if Econet lost a single client to Netone.

  2. Mr Journalist you seem to have conveniently forgotten to tell your avid readers that the deal has the blessings of ZSE CEO – against the advise of his colleagues at ZSE – who is being represented by TN legal practitioners in a case in which he was facing domestic violence charges. TN financial advisors are the lead financial advisors in this misty transaction deliberately structured to give Strive owned Econet Global all those shares for a song. Soon and very soon Econet will realize that arrogance does not give them any rewards but misery.

  3. So can we then say the truth is coming out why they were increasing their tariffs to unreasonable levels?????????

  4. I doubt if this has anything to do with tariffs. This company is operating profitably and is awash with cash. In fact, if you check their 2016 Annual report, they had about $213m in cash & cash equivalents which I’m sure by now should be closer to $300m. The problem, as they rightly say, is that that cash is pretty much useless because it’s not real US$. This is a problem created by RBZ when they decided to make the US$ our functional currency when we don’t generate enough of them. Why do you think the business community is crying everyday about the lack of FX in the country and yet the country’s banks are sitting on $6bn in deposits? And it appears this has also played into the pricing of the offer where the new shares are being issued to those holding FX outside the country at a sixth of the current price they are trading on the ZSE. In other words, a dollar outside the country is worth much more than a dollar in a Zimbabwean bank, and according to the pricing of this offer, the implied rate is 1 US$ offshore to 6$ RTGS. My guess is, the whole scheme has RBZ’s approval coz they have failed to make FX available and are acutely aware of the Billions of fake dollars circulating in the local banking system.

Leave a Reply

Your email address will not be published. Required fields are marked *