THERE was drama at Econet Wireless Zimbabwe's extraordinary general meeting (EGM) when state-run National Social Security Authority (Nssa), together with other shareholders and proxies, took the mobile phone operator to task over possible conflict of interest regarding a capital-raising exercise.
Econet is currently seeking shareholder approval for a capital raise of US$130 million by way of a rights offer of ordinary shares and linked debentures in order to facilitate the servicing of its foreign debt.
Sources who attended the company's EGM told the Zimbabwe Independent that while shareholders voted for the rights offer on February 3, several issues pertaining the capital raise were raised by concerned shareholders.
In its initial circular that unnerved local investors, Econet had announced that proceeds of the rights offer must be paid by each participating shareholder into the debt service account held by Econet with the African Export and Import Bank outside Zimbabwe and for the proceeds to be applied by the company to repay its secured loan obligations.
Nssa is one of the top 20 shareholders in Econet with 1% of issued share capital.
According to a Nssa insider who spoke to this newspaper, the pension fund raised fundamental problems of conflict of interest on the part of the underwriter, Econet Wireless Global (EWG), which currently has 30% shareholding in Econet Wireless Zimbabwe (EWZ) Holdings Ltd.
EWG is registered in Mauritius and has operations and business interests, in more than 17 countries around the world, including Zimbabwe. EWZ operates only in Zimbabwe, and has no businesses, operations or investments outside Zimbabwe. Investment in the shares of EWZ are with respect only to the businesses, and activities of EWZ.
"As Nssa we raised two points: firstly we questioned if there was any other option other than the US$130 million capital raise that the company could pursue. We felt that the underwriter could have settled the obligations, then once this was done shareholders would now deal directly with the underwriter," an insider said.
"Another issue was that we felt that the underwriter shouldn't have participated in the capital raise."
Another market watcher also concurred, questioning the participation of EWG.
"The underwriter is a related party — whereas the circular sought to portray EGL as an unrelated party.
The company chairman Godfrey Gomwe sought to cite examples where Nssa itself has underwritten some issues in trying to justify this position. (Tawanda) Nyambirai (the lead financial advisor to the rights offer) tried to explain this using some ZSE rules — but it's clear EGL as a 30% shareholder is a related conflicted party," an analyst who attended the meeting queried.
"Imara Nominees also complained about the overnight and improperly communicated change over the rights of the local shareholders which is material and would affect how they voted, especially given that they had submitted proxies. Gomwe responded that the change will hopefully make shareholders vote positively, which is an advantage.
"Stanbic Nominees also raised concerns about why the guarantor EGL did not step in and pay the debt given that it's a guarantor being paid 6%. There was no meaningful response to this question.
Then Hardy Pemhiwa, representing EGL, also spoke about the fact that the change requiring local shareholders to pay locally was rushed and they also need changes to the resolution. He proposed an amendment to resolution number four on debentures so that the debentures can be listed on a foreign exchange for trading.
The convening of the EGM against board directive has resulted in Zimbabwe Stock Exchange chief executive Alban Chirume being suspended. Chirume was last week dodgy on whether or not the meeting would be held despite several issues that were raised by the board questioning the capital raise.
Independent columnist Brett Chulu, in his article today, says if Econet had insisted on just raising funds through a rights offer, it would have encountered a serious problem — it does not have enough unissued shares to offer at a bargain of 5 US cents a share.
At 5 cents a share, Econet would have raised only 5% of the US$130 million required to meet its financial obligations.
"For Econet Wireless Global, the 30,2% majority shareholder in Econet, using its influence at board level to have the rights offer take the underwriting option (back stop commitment), would have been a no-brainer. It is very likely that the fear of losing control drove Econet Global to insert itself as the underwriter to pick up any shares not taken up by other shareholders," Chulu writes. "It explains why the shares were massively discounted to enable the underwriter to buy these without having to break the bank.
It also sheds light into why a clause was inserted to the effect that EWG, the underwriter, could elect to either offer minorities the shares it mops or not … It can calibrate the shareholding level it desires. EWG could not afford to put its fate in the hands of either an independent underwriter or a process of re-allocating mopped up shares it could not control."
- the independent