In a statement through the ZSE on Friday, Econet (EWG) has said half of the debentures held by the company will be transferred to Cassava since the conversion has hit a hurdle.
Minority shareholders have resisted a debenture conversion to equity in Econet but unanimously voted in favour of a demerger of the Smartech operations.
The Smartech operations will now be independently listed on the ZSE by way of introduction in the first IPO of the year.
The IPO was initially targeted for the 11th of December which however did not materialise due to outstanding debenture conversion issues which is directly linked to the listing.
The debentures in question were issued in line with a 2017 capital raise which also involved a rights offer. The collective $130 million targeted issue was primarily meant to extinguish foreign debt which was on the verge of falling due, thus risking the company’s solvency
Econet managed to raise the funds and went on to settle the foreign debt thus averting the potential crisis.
The convertible debenture were targeted for repayment in 6 years that is maturing in 2023, suffice to say a good portion of the debentures are held by foreign shareholders mainly parent EWG (85%).
In a circular to shareholders ahead the November EGM, Econet then proposed the conversion to equity in line with linked Smartech spinoff.
“As a result of the demerger, 583,453,309 debentures being 50% of 1,166,906,618 debentures in issue in EWZL will be transferred to CSZL, with the balance remaining in EWZL.”
“The split of the debentures between EWZL and CSZL has been necessitated by the fact that debentures conversion has not taken place”
The resisted conversion, could have resulted in a disproportionate dilution of existing shareholders given steep conversion rate. There is a concern among minorities that the rate of conversion is disproportionate to the value of debenture viz a viz econet’s market value at the capital raise point.
Given that the debenture matures in at least 5 years’ time, minorities would rather opt to let the debenture value erode against inflationary pressure, than convert at current proposed rate.
The impasse is likely to be dealt with conclusively at the next EGM.