ECONET Wireless Zimbabwe is set to seek shareholder approval for a US$130 million capital raising exercise to enable it to pay off its foreign debt.
Econet owes four financial institutions US$128,19 million with a weighted average of 7,1 percent as at February 29, 2016. In addition to this the group pays guarantee fees of 6 percent per annum to Econet Global for the guarantee provided on the multi-creditor loan facilities.
According to the circular, published on Wednesday, shareholders shall be offered, pro rata to their shareholdings 1 082 088 944 ordinary shares plus 263 050 614 Class A shares at a subscription price of 5c each on the basis of circa 82 ordinary shares for every 100 shares already held under a rights issue. Each shall be linked to a redeemable debenture with an issue price of 4,665c each at a coupon rate of five percent per annum, payable upon redemption and a redemption value of 6,252c each inclusive of the cumulative interest coupon for the six-year period.
According to the group, the rights offer shares are priced at a discount to market in order to provide an incentive for members to invest capital into a deflationary and illiquid environment where it is extremely difficult to withdraw cash in United States Dollars, or to make foreign payments. The linked debentures are being issued in order to mitigate the dilutive impact of the rights offer.
An EGM has been set for February 3, 2017.
However, concerns have been raised over a condition in the circular, which was published today, that shareholders shall follow their rights by paying the proceeds of the offer in United States Dollars directly outside Zimbabwe into the group’s debt service account with Afreximbank at a Standard Chartered London branch. Afreximbank is the Security Trustee and Facility Agent, selected by the syndicate of lenders under the existing loan facilities and is responsible for receiving and allocating payments to all the lenders.
* The general feeling is that if by its own admission, Econet said that there was a critical shortage of foreign currency in bank’s nostro accounts, how are shareholders expected to pay for their rights offers. The rationale clearly indicates bottlenecks of local investors participating and to an extent violates the rights of minority shareholders. It has been observed that the group should have made arrangements with a local bank to act as a receiving agent for Afreximbank, that way it would ensure every shareholder does not fail to follow rights. Loan repayments are however on priority list 1 on forex allocation.
* It is not clear whether the Exchange Control Approval applies to all shareholders or they shall need to get separate approvals as the circular only relates to Econet seeking approval to:
-keep the rights offer proceeds outside Zimbabwe
-Utilise the rights offer proceeds for the purposes of paying its secured loan obligation
-Ensure that the payments received from non-resident shareholders or underwriter are deemed as foreign currency received in Zimbabwe through normal banking cannels for purpose of the Exchange Control Regulations
* If Global guaranteed the loans and were being paid guarantee fees at six percent per annum, wouldn’t it have made sense for the same company to pay the debt?
* Most analysts were also seeking further clarity on the Letters of Allocation and Debentures in terms of their tradability and the release of some of the Class A shares as rights issue shares. FinX