A couple of years ago Econet Wireless and EcoCash Holdings called for an early redemption of debentures. That may sound like Greek to some but you can get the explainer here: Econet Wireless Zimbabwe calls for early redemption of debentures.
In short and in English, Econet/EcoCash owed US$73 million (debentures+interest) which had to be paid back after April 2023. They decided to pay back that money early and called on all the creditors (technically debenture-holders) who wanted to get their money back early.
Not all debenture-holders settled early. In fact, only 22.74% opted for early redemption.
Cut to 2023 and the rest of the debenture-holders must be paid back now. As they say in finance, their debentures have matured now.
As a result, both Econet and EcoCash are looking to raise the money to pay it back. This time around they are raising that money from their current shareholders.
This would result in the company no longer being in debt. Well, this particular debt at least.
The Rights Offer
Econet and EcoCash are looking to raise $30.3 million each, a total of $60.6 million. This should cover the debt.
Econet and EcoCash are proposing Rights Offers. A rights offer is simply, a way for a company to raise money by selling new shares to its existing shareholders.
Not all current shareholders will be willing or able to buy more shares. However, they have the right of first refusal. If they buy the new shares, they get to maintain whatever level of ownership of the company they had before the new shares were issued.
Shareholders that don’t buy more shares stand to have their shareholding diluted. Which just means they will own and control less of the company.
This Rights offer is subject to approval by the Zimbabwe Stock Exchange (ZSE). This approval has not been granted yet because they haven’t asked yet. Econet can only apply after their financial statements are audited. The audit is in progress.
It is unlikely that the ZSE will deny the request, however, Econet has had to caution shareholders dealing in the company’s shares that there is this pending matter which could materially affect the price of their shares on the market.
That is why you may have happened upon the statement below
Econet Wireless Zimbabwe – Cautionary Announcement
Further to the Cautionary Announcements dated 5 April 2023 and 27 April 2023 respectively, Shareholders are advised that the Company’s application for Exchange Control Approval relating to the proposed Rights Offer is still pending.
The Application to the ZSE Listings Committee for the approval of the publication of the full Circular will only be finalized upon completion of the audit of the Company’s financial reports for the year ended 28 February 2023 which is currently in progress.
In the circumstances, shareholders are further advised to exercise caution in dealing with the securities of the Company.
By order of the Board
Group Company Secretary
30 May 2023
Why the rights offer is being made
Econet clearly explained what’s going on,
There are competing needs for the foreign currency generated by the Company with the highest priority being given to the financing of the upgrade of the network infrastructure and the technology in use by the Company.
I think we can all agree that Econet has to prioritise the upgrade of their network infrastructure. By their own admission, their service has been poor and so whatever forex the company raises during the normal course of business should go to that and not to pay back special creditors.
The Company is not able to secure foreign currency for purposes of redeeming the debentures from the auction. Therefore, the only available option is to raise the required foreign currency from members through the Rights Offer
We also all know that these telecoms are not getting all the forex they need from the Reserve Bank’s auction. We have seen even the telecoms regulator, Potraz, lobby on their behalf to get more forex but that’s just not happening. They just aren’t a priority to the powers that be.
Defaulting is not an option
If the proposed rights offer is not made, the Company will be faced with the risk of defaulting on its Debenture maturity obligations. This will damage the company’s prospects of accessing future loan facilities.
That’s clear enough. Econet cannot use company-generated forex to service this debt at the expense of service delivery. They also cannot get the forex from the auction. So, the rights offer has to be made.
If they fail to pay back their creditors, they will have their name entered in a black book and will struggle to raise money in the future.
Us Zimbabweans don’t need reminding what defaulting on paying a debt and being cut off from lending looks like. The country as a whole is in that position. Econet cannot afford to join them in the black book.
That’s it. That is all that’s going on with Econet and their cautionary statements.