Econet, EcoCash seek US$30,3m from shareholders

In order to redeem the existing debentures in the capital of both companies, Zimbabwe Stock Exchange (ZSE) listed telecommunications company Econet Zimbabwe and its subsidiary, EcoCash Holdings, announced their intention to raise US$30,3 million through a renounceable rights issue.

The two companies issued cautionary statements earlier in the month to alert shareholders of their intention to issue new ordinary shares.

“Shareholders are advised that the Board of Directors of Econet Wireless Zimbabwe Limited (the “Company”) is considering proposals to call for an Extra Ordinary General Meeting of Members for the purpose of considering a renounceable rights issue (the “Rights Issue”) of new ordinary shares in the capital of the Company (the “Rights Shares”) to raise a total amount of approximately US$30,3 million that is required to redeem the outstanding Debentures in the Capital of the Company,” said Charles Banda, Econet’s group company secretary in a cautionary announcement.

Charmaine Daniels, EcoCash Holding’s group company secretary, also made the same announcement.

“Shareholders are advised that the Board of Directors of EcoCash Holdings Zimbabwe Limited (the “Company”) is considering proposals to call for an Extra Ordinary General Meeting of Members for the purpose of considering a renounceable rights issue (the “Rights Issue”) of new ordinary shares in the capital of the Company (the “Rights Shares”) to raise a total amount of approximately US$30,3 million that is required to redeem the outstanding Debentures in the Capital of the Company,” she said.

In 2017, Econet issued a total 1 166 906 618 debentures, valued circa US$54 million, which would mature after six years at a value of US$72 million including interest on maturity in 2023.

However, of the US$54 million the company issued an early redemption option in which US$14,8 million was redeemed by shareholders in July last year.

The company indicated at the time to debenture holders that it had resolved to initiate early redemptions spread over time as this would give it the opportunity to manage its cash flows over an extended period of time.

Econet said early redemption will give it an opportunity to strengthen its balance sheet by reducing foreign currency exposure and minimise potential future exchange losses from a weakening Zimbabwe dollar.

According to economist, Dr Prosper Chitambara, a rights issue can have several effects on a company’s shareholding and market share price both positive and negative.

“A rights issue involves the issuance of new shares, which can result in the dilution of existing shareholders’ stakes. This is because the new shares are usually offered to existing shareholders in proportion to their existing holdings, and they have the option to buy more shares at a discounted price.

“This means that if existing shareholders choose not to participate in the rights issue, their ownership percentage in the company may decrease.”

Another economist Prof Tony Hawkins, said the issuance of new shares through a rights issue increases the number of shares outstanding in the market, which can impact the market share price.

“If the market perceives that the new shares will dilute the earnings per share (EPS) of the company, the share price may decrease. However, if the market believes that the funds raised through the rights issue will be used to pursue growth opportunities or pay off debt, the share price may increase,” he added.

Other scholars argue that a rights issue can be seen as a sign of confidence by the company’s management that it has a solid plan for growth and is confident in its future prospects.

This is said that it can increase investor confidence and attract new investors, which may result in an increase in the market share price.

Others say a rights issue can also have an impact on a company’s balance sheet.

If the funds raised through the rights issue are used to pay off debt, it can improve the company’s financial health and creditworthiness. This can result in a positive impact on the market share price which is what Econet and EcoCash will be hoping for.

Under the current economic climate, Econet released a fair set of financial results. The group benefited from a somewhat stable operating environment, as evidenced by the noticeable climb in the implied USD revenues at US$469.1 million.

Despite the rise, the figure is some way off the peak dollarisation era earnings (accounting for the unbundled EcoCash historical earnings). The recent trend in the group’s historic earnings illustrates the depressed operating environment facing the local business sector.

Nevertheless, the Econet Wireless group strives forward. The depressed consumer environment will not offer much growth in the short term, and the unbundling of the tech operations means internal growth opportunities are limited as well.

However, it is positive that the group has been able to maintain its margins despite the inflationary pressures, although this may have come at the expense of operating efficiency, given the rising complaints about service quality.-ebusinessweekl