21 April 2017

Zimbabwe: Econet Major Shareholder Grabs 26 Percent

ECONET Wireless Zimbabwe's majority shareholder has snapped up 26% of the rights issue shares, increasing its shareholding in the country's largest mobile phone company to nearly 40% as cash-strapped local shareholders followed their rights after the relaxation of the payment terms, results of the capital raising initiative have shown.

In January, Econet announced it was seeking shareholder approval for a capital raise of US$130 million by way of a rights offer of ordinary shares and linked debentures in order to facilitate the servicing of its foreign debt.

Shareholders were expected to vote for or against the rights offer on February 3.

According to the results, the capital raise had a subscription rate of 74,6%, a development analysts attributed to an attractive offer price and the relaxation of payment terms. Over 1,3 billion ordinary and treasury shares were on offer during the capital raise.

The weighted average interest rate on long-term borrowings for the company as at February 29 2016 stood at 7,1% (2015: 7,3%).

In addition to the all-inclusive rate of borrowing of 7,1% the group pays guarantee fees of 6% per annum to Econet Global Limited for the guarantee provided on the multi-creditor loan facilities.

The rights offer will be fully underwritten by Econet Global Limited which holds 30,02% shareholding in Econet Wireless Zimbabwe.

EWG is registered in Mauritius and has operations and business interests in more than 17 countries around the world, including Zimbabwe. EWZ operates only in Zimbabwe, and has no businesses, operations or investments outside Zimbabwe.

Investment in the shares of EWZ are with respect only to the businesses and activities of EWZ.

The rights offer was almost called off after the country's capital markets regulator, the Securities and Exchange Commission of Zimbabwe, raised the red flag over the initial payment terms of the exercise which it feared would prejudice local shareholders.

A standoff between Econet, SECZ and the ZSE board resulted in the suspension of ZSE chief executive Alban Chirume.

Analysts had also raised eyebrows over the urgency of the capital raise, saying it comes well before the due date of the debt with some saying this could be a plot to buy out minority shareholders given the current foreign currency shortages in the market.

They also queried why Econet Global did not bail out EWZ given that the debt was secured and the group was receiving guarantors' fees which are above market rates.

This ended after the Reserve Bank of Zimbabwe ordered Econet to accept subscription of the rights issue into a local account and using bond notes, a controversial fiat currency introduced last November.

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