ECONET Wireless Zimbabwe shares tumbled 10 percent to 27 cents on Thursday amid panic selling by small shareholders, over concerns surrounding the telecoms company’s planned rights issue to raise more capital. The country’s biggest mobile telecommunications, with over 10 million subscribers, did not trade on Friday, which possibly points to growing concerns among investors over the controversy now seemingly stalking the firm’s $130 million dollar offer.
Already, the Zimbabwe Stock Exchange board chair Caroline Sandura, has confirmed that she has since been notified regarding the issue of the circular for the rights issue as it emerged procedure was not properly followed when it was published.
Sources say a meeting by the Listings Committee last Thursday failed to reach a mutual understanding over the Econet resolution but the ZSE board would meet today to discuss the way forward while stockbrokers would meet tomorrow (Tuesday).
Overall, there are concerns that through the offer, Econet may squeeze local small shareholders slashing their percentage of the shares and profits , having proposed stringent payment procedures using foreign banks, analysts say.
Last week the telecoms firm announced plans to raise $130 million through a rights issue and linked debentures, to service its external financial obligations amid fears it may struggle to service them due to internal shortage of foreign currency
According to the conditions of the rights offer, shareholders shall follow their rights by paying the subscription price for the shares and linked debentures directly into the company’s debt service account with Afrexim Bank held by Standard Chartered, London.
Payment will be recognised in cleared funds reflecting in the designated account on or before March 20, 2017 and is to be approved subject to exchange controls.
While rights issues are an acceptable way of raising capital by firms, it is the payment process that is feared will put local minority shareholders at a disadvantage that is worrisome and might result in the majority of them failing to follow their rights.
Stockbrokers Lynton Edwards Securities said that the proposed transaction leaves minority shareholders’ future with the telecoms company hanging by a thread due to the possibility they may fail to follow their rights.
“The payment modalities, however, have an element of risk for local investors.
“There are chances that those following their rights might not have their funds approved on time and in the process might miss out on following their rights,” said LES.
Analysts have suggested that Econet should come up with another arrangement for local minority shareholders to be able to pay and follow their rights, possibly through a local receiving bank agent, which will then remit the funds to a London bank account.