After nearly 30 years on the Zimbabwe Stock Exchange (ZSE), Econet Wireless, the country’s biggest technology company, is preparing to leave the bourse and move its property and infrastructure assets to the US dollar-based Victoria Falls Stock Exchange (VFEX).
Econet plans to spin off its towers, property and power installations into a new company, Econet InfraCo, which will be listed on the VFEX. Its mobile network operator business will be delisted from the ZSE.
Why is Econet leaving the ZSE?
Econet believes the market has failed to properly value its business and its assets. At the time Econet first released a cautionary on December 3, its market capitalisation was the equivalent of US$628 million. A rally over the past days has lifted it to a market capitalisation – the number of shares times the share price – to around US$1 billion.
“For the last several years, the company has traded at a significant discount to its peers across Africa which trade at 6 – 8x EV/EBITDA. These peers have all already separated and realised value from their tower infrastructure whereas the Company still owns its tower and other passive infrastructure which the company has now housed under a separate infrastructure Company to be Listed on the Victoria Falls Stock Exchange,” Econet says.
Econet will keep 70% of Econet InfraCo, with up to 30% used to settle an offer to shareholders who do not wish to remain invested. The company argues that infrastructure assets are better suited to the VFEX, which trades in US dollars and attracts investors familiar with property and long-term infrastructure. “Unlike the mobile network operator business in Zimbabwe, infrastructure assets represent a different class of investment, one that is better understood and valued within USD-based property and infrastructure markets. This is demonstrated by the higher Price-to-Earnings multiples at which listed real estate and infrastructure companies trade on the VFEX,” the company says.
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What assets does Econet have?
Econet dominates Zimbabwe’s mobile market, with 88% of voice traffic, 82% of data usage and 73% of all subscribers. It has built the largest portfolio of telecoms assets. By the end of the second quarter, it had 234 5G sites, 1,700 LTE sites, 1,900 3G towers and 2,860 2G locations. In the half-year to August alone, it added 27 new 2G–4G sites and 100 new 5G sites. In addition to these locations, Econet also holds other properties and power assets, including solar installations, Tesla batteries and generators.
Where has this happened before?
The move follows a well-established trend in Africa. MTN and Airtel Africa sold towers in Nigeria, Ghana, Uganda and Kenya to independent operators like IHS Towers and Helios Towers. Vodacom, Orange and Telkom South Africa have also carved out tower units through sale-and-leaseback deals.
What does this mean for the ZSE?
While the move may make strategic sense for Econet, its exit is a major blow to the ZSE, which has been working hard to make the exchange more attractive. Econet makes up about a third of the exchange’s value. It is also the second-best performing stock on the ZSE so far this year, having nearly doubled in price. If Econet leaves, the ZSE would immediately shrink in size and depth. Econet is a critical source of liquidity, which is how easily shares can be bought and sold without sharply moving prices. It is one of the ZSE’s most frequently traded stocks, attracting large pension funds as well as ordinary retail investors.
On Monday, Econet accounted for about 3.9% of total market turnover by value and 7.1% of all trades by number. This steady activity helps keep the market running. Without Econet, daily trading volumes will fall significantly. Econet’s departure will also send a worrying signal about the attractiveness of Zimbabwe’s public equity market to large corporates.
Econet is not the first company to raise concerns about valuation on the ZSE. Powerspeed, which owns Electrosales, delisted from the exchange, arguing that the market failed to reflect underlying asset values. National Tyre Services is also leaving the ZSE at month-end. Econet’s decision highlights ZSE’s challenges of retaining high-value companies on the local currency-denominated exchange.