Econet Wireless Zimbabwe calls for early redemption of debentures

A few days ago Econet Wireless Zimbabwe (Econet) issued a notice to its debenture holders offering to redeem debentures it issued on 17 January 2017 early. This means instead of waiting for them to mature about three years from now, the holders of the debentures can have them redeemed now. The debentures have a market value of approximately US$73 million including interest; an amount which is so significant the RBZ is involved in the process in order to “manage market liquidity.”

Notice is hereby given to the Debenture holders of Econet Wireless Zimbabwe Limited inviting them to offer their Debentures to the Company for early redemption in accordance with the provisions of the Debenture Trust Deed dated 18 January 2017 and the Circular under which these Debentures were issued dated 17 January 2017.

Although the early redemption of the Debentures held by both local and foreign Debenture holders was pre- approved by the Reserve Bank of Zimbabwe upon the approval of the Circular issued on 17 January 2017, the Company has sought and obtained the further approval of the Reserve Bank of Zimbabwe for
the early redemption of the Debentures in Zimbabwe Dollars calculated at the prevailing interbank rate. However, in view of the significance of the amount involved, the Reserve Bank of Zimbabwe stipulated that the early redemption must be done over an extended period of time, and has approved the period
April 2021 to April 2023 for the early redemption of the debentures.

Part of Econet‘s notice on the call for debentures

What the heck is a debenture

When you are a large company like Econet (just assume we are talking about Econet Wireless Zimbabwe when we say Econet in this article) you have three main ways of raising money for large capital expenditure projects:

• Issuing additional shares of whatever class you choose to issue depending on the law of the land. Usually this takes the form of what is known as a Rights Issue were shares are offered to existing shareholders to preserve the current shareholding structure. Existing shareholders have to be offered the shares first if they refuse they can then be sold to third parties.
• Getting a loan from a financial institution. Econet had such a loan from Afreximbank and another from China Development Bank. They issued debentures in order reorganise these loans.
• Issue debentures. Debentures are almost like shares. They involve a piece of paper/similar written arrangement being given to members of the public in exchange for money being given to Econet. Unlike shares they are treated as a loan and they receive interest instead of dividends. That loan has to be paid each time it’s due unlike a dividend which, depending on the shares in question, can be waived.

N.B. Some local publications who have written on the issue are claiming those debentures are unsecured loans by definition. This is patently false. Debentures can be naked (i.e. unsecured against the issuing company’s assets), floating (secured on unspecified assets of the company) or even mortgage debentures (secured on immovable assets of the company). It’s not clear which type of debentures these Econet ones are.

Anyway, as already hinted above, the reason why Econet is offering to redeem these debentures early is in order to manage the foreign currency obligations that come from this redemption. The RBZ will be helping them perform the phased redemption so as to minimise the likely seismic effect of moving US$73 million at once at some future point.