Cassava Smartech To Be Listed On The Zimbabwe Stock Exchange Tomorrow (18 December)

So after Econet successfully went ahead and split into two companies, Cassava Smartech is finally going to be listed on the Zimbabwe stock exchange as a separate entity with its own shares and stock code. This means that traders can now buy and sell Cassava Smartech Zimbabwe Limited shares separately from Econet Wireless Zimbabwe Limited shares.

As part of the process Cassava SmarTech have issued a public notice of this listing:

Following the finalisation of all the conditions precedent to the demerger of Cassava Smartech Zimbabwe Limited (CSZL) from Econet Wireless Zimbabwe Limited (EWZL):

• 770 000 000 CSZL shares representing 77% of the initial issue were issued on credit  to the members of EWZL pro rata to their shareholding as at the record date;
• 200 000 000 shres representing 20% of the initial issue were issued on credit to EWZL ….

Consequently 2 590 577 241 issued ordinary shares in Cassava Smartech Zimbabwe Limited will be listed by way of introduction on the Zimbabwe Stock Exchange on Tuesday the 18th of December 2018

Listing by introduction is a way of floating (getting) shares to the stock exchange that does not involve an Initial Public Offering. When shares are floated by introduction, a company joins the stock exchange without raising any capital. In general, a company can do this if  a large percentage of its shares are already in public hands and there is a fair spread of shareholders. An introduction does not  incur underwriting fees and there is usually little requirement for advertising, but this is Econet.

The enduring mystery of debentures

Hidden in the mass of words about the split was a proposal that would have seen some of Econet’s debentures have the option to convert their debentures into share (presumably ordinary shares). It seems these mystery debenture holders refused this offer. The result was that Econet and Cassava were forced to split the debentures between them.

So what is a debenture you may be wondering? A debenture is a long term loan made to a company in this case Econet. In return for the loan the company in question gives the loan giver a debenture certificate. Debentures earn a fixed rate of interest whether the company has made a profit or not. Companies like debentures because debenture interest is a tax deductible expense.

It is very rare for debentures to be issued in perpetuity. In most cases debentures are redeemable i.e. the company can pay back the principle amount and get back its certificates. In other cases debenture holders have the option where they can have their shares converted into shares at a predetermined rate.

In fact it is quite common for debentures to have both options as in the case of Econet’s debenture holders. Econet Wireless Zimbabwe Limited had 1 166 906 618 debentures which it split equally with Cassava Smartech Zimbabwe Limited after the debenture holders passed on the option to have their debentures converted into shares.

Currently the debentures have a nominal value of 4 665 cents per debenture and earn an interest of 5% per year. They are redeemable on 3 May 2023. Their conversion to shares has been postponed indefinitely.

Econet shares already trading at a discounted rate

If you recall the split resulted in certain entities (subsidiaries of Econet Wireless Zimbabwe Limited) being transferred to Cassava Smartech. This resulted in Econet’s shares selling at a discounted rate reflecting this loss of assets with Econet shares losing as much as just over 32% in value the morning after the official demerger.

It will be interesting to see at what value the Cassava Smartech shares will sell at when trading begins tomorrow. I have a sneaking suspicion that the combined market capitalisation of both entities will be worth much more than the net worth of Econet Wireless Zimbabwe Limited before the demerger. 2+2=5 after all.

It will however be hard to ascertain how much of this increase in market value will be a result of the demerger as opposed to the result of further operations both entities have carried out before the listing of Cassava Smartech.