The separation could be over soon – Econet to absorb EcoCash but Steward to stand alone

It has been five years since EcoCash was spun off to be its own company, complete with a separate stock exchange listing. It was spun off but control remained with the same ‘persons’. These persons now want EcoCash back in the fold.

Econet announcement

Here is a paraphrase of Econet’s announcement:

Econet and EcoCash, being companies under the same control, are engaged in negotiations that may result in the transfer to Econet of the following Fintech Businesses: EcoCash, VAYA, Econet Insurance, Econet Life, MARS, and Maisha Health in exchange for Econet shares that may be distributed to the EcoCash Shareholders on pro rata basis.

That means the only business which Econet is not ‘taking over’ is Steward Bank. Taking over is in quotes because these businesses that are being taken over are already under the control of Econet.

Why is Econet doing this? Well, we don’t know but let’s look at why they spun EcoCash off in the first place. That could give us a clue:

Why was EcoCash spun off?

Various reasons were given but it boiled down to:

• Unlocking Value – the spin-off was a strategic move to unlock the value of the businesses under Cassava (remember they went by that name). The thinking was that the value of EcoCash and those other businesses could be limited if trading in them requires trading in shares of an entity in a different sector i.e. Econet.

EcoCash had been operating independently for years under Cassava and that Cassava on the whole was contributing about 30% of the group’s revenues. Of course, most of that was EcoCash itself.

So, some of the reasons for the spin-off were diversification – there was fascination with the Tencent diversification model within the Econet group.

The spin-off would also grant iron-clad independence for the fintech businesses.

I think the biggest thing was that Cassava had huge ambitions, huge African ambitions. Cassava wanted to be a giant in Africa, with a wide range of services beyond just mobile money. Those ambitions would not be met if it remained a subsidiary of Econet, or so they reasoned.

So why undo the spin-off?

Here is what undoing the spin-off means – the spin-off did not achieve what it was intended to achieve.

Unlocking value – I don’t know if value was unlocked but what I do know is that when EcoCash was spun off, we were still in the 1:1 days, where the govt maintained that the RTGS$/ZW$ was equal in value to the USD.

EcoCash (Cassava) was listed on the 18th of December 2018.

EcoCash shares traded at ZW$1.23 a pop on the 23rd of December 2018. That was close enough to US$1.25, so let’s just call it that.

The 1:1 peg was abandoned in February 2019.

Today, EcoCash shares are trading are approaching ZW$700 a pop. That’s massive growth, right? Well, the ZW$ lost a lot of it’s value since 2018 and although nominally, there is a huge increase in share price, the actual value per share is significantly down.

ZW$700 is worth about US$0.05 today. So, actually, value was not unlocked as Econet had hoped, value was decimated.

You can then ask what happened to the African ambitions too. You can ask a lot of questions but I think the prevailing economic conditions in the country made it so the spin-off didn’t work as intended.

Interesting

It is interesting news and one hopes the remarriage will work out.

In the end though, this is merely a reorganisation of Econet’s companies. Nothing much has changed. They were in control during the split, they will remain in control after patching up their differences.

This reorganisation is commonly called a Scheme of Reconstruction in finance circles.

Econet says this Scheme of Reconstruction will not result in the delisting of EcoCash or Econet. So, both entities will stay listed.

Does this mean the EcoCash board will be done away with, streamlining management in the process? If so, does this mean Econet was not happy with the leadership of EcoCash?

So many questions, so few answers. We shall keep an eye on this.

Also read:

• Econet, NetOne, Telecel still seeing operating costs outpace revenues, IAPs have solved the puzzle
• Econet, EcoCash looking to raise US$30.3 million each to pay back debt, hence the rights offers
• Econet To Unbundle And List Cassava Separately On The ZSE