Econet Wireless Zimbabwe, the country’s largest and only listed telecoms operator had an extremely turbulent week marked by a significant fall in its share price.
It closed the week ending on the 27th of January with a share price of 18 cents and a market capitalisation of US$163,677,319. The figure represents a decline of over US$100 million in less than two weeks. This builds on an initial 10% decline registered by the 23rd of January.
The volatility has been linked to the announcement Econet made on the 17th of January 2017 that it was seeking to raise US$130 million from its shareholders through a rights issue.
A rights issue is a strategy used by companies seeking to raise money. The company which needs to raise capital either for expansion, debt payments or other priorities invites its shareholders to buy more shares by giving them “the rights” to do so at a discounted price. Each share secures a certain number of additional shares at a discounted price.
Econet shareholders were advised that the payments for this capital raise would have to be made to an offshore account as Econet intends on using this as an avenue to harvest foreign currency which will be used to settle some of its debts outside the country.
With Zimbabwe experiencing a foreign currency shortage, the move, which could solve Econet’s issue with its creditors puts local shareholders with no access to foreign currency at a disadvantage. One solution for them has been to sell their shares since holding on to shares with rights they can’t exercise will mean a dilution of the value of the shares they’ll be left holding.
Econet has an extraordinary general meeting with its shareholders set for Friday the 3rd of February where it will seek shareholders approval to go ahead with the rights issue.
If the shareholders give their go ahead and it’s greenlit by the regulators, this could provide the telecoms operator and other local firms with international creditors a workaround for the foreign currency challenges affecting the country.
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A rights issue means that the current shareholders have the right to purchase the shares first before the offer is made to other parties. In a rights issue additional shares are issued on a pro rata basis to ensure that the current shareholding structure is maintained.
Right’s share issues are usually but not always issued at a discounted rate
You are right, but the problem is that local shareholder won’t be able to purchase additional shares even if they have the money (or rather, bond notes) to do so – unless the RBZ intervenes and allows them to ‘externilise’ it to the offshore account.
So the real choice for local shareholders is to face dilution of their shares or sell – which incidentally might attract foreign buyers and with them forex inflows; therefore the RBZ is doubly biased against local Econet shareholders
Now is the time to buy them Econet shares.. too bad aint got a dime 🙁
I am holding on to my shares. Really saddened by the erosion. Any advice – experts? Thank you