Econet announces proposed conversion of 5% convertible debentures

Early redemption of the Debentures will allow the Company to strengthen its balance sheet by reducing its foreign currency exposure and minimizing any future exchange losses that might result from the weakening of the ZW$ against the U.S dollar.

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HARARE – Econet Wireless Zimbabwe Limited, the country’s largest provider of telecommunications services and a leading media and technology company, today extended an invitation to holders of 1 166 906 518, 5% unsecured debentures (the “Debentures) of the Company to offer their debentures for early redemption, pursuant to the provisions of the Debenture Trust Deed dated 18 January 2017 and the Circular under which these Debentures were issued dated 17 January 2017.

A convertible debenture is a type of long-term debt issued by a company that can be converted into shares of equity stock after a specified period. Convertible debentures are usually unsecured bonds or loans, often with no underlying collateral backing up the debt. The unique feature of convertible debentures is that they are exchangeable for stock at specified times. This feature gives the bondholder some security that may offset some of the risks involved with investing in unsecured debt.

The Debentures shall be redeemed at the face value of 4.665 US Cents each plus interest thereon calculated at a coupon rate of 5% per annum and compounded annually from the date of issue up to the date of payment, to be converted to Zimbabwe Dollars at the prevailing interbank rate as at the date of payment.

The proposed conversion of these long-term debt securities held by both local and foreign Debenture holders was pre-approved by the Reserve Bank of Zimbabwe (RBZ) following the issuance 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,” the Company said in a notice to the bondholders.

“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.”

Rationale of the early redemption

The Company gave the following reasons why the Board has decided to exercise its discretion to give Debenture holders an opportunity to redeem their debentures early:

  1. 22% of the debentures are held by local debenture holders and the balance is held by foreign holders. If the Company waits for the maturity date, Debenture holders may at that time be prejudiced as they will all have to queue up for the scarce foreign currency at the same time. This could put pressure by increasing the demand for foreign currency on the foreign exchange auction. Thus, the opportunity for the early redemption of the debentures allows for the redemption of the debentures in smaller tranches over an extended period of time.
  2. The opportunity gives those Debenture holders who wish to exit early, an opportunity to do so and to apply their funds to alternative investments.
  3. Early redemption of the Debentures will give the Company an opportunity to strengthen its balance sheet by reducing the amount of its foreign currency exposure and to minimize any future exchange losses that might result from the weakening of the Zimbabwe Dollar against the United States Dollar.
  4. Early redemption affords the Reserve Bank of Zimbabwe, which has insisted on an extended redemption period, the opportunity to manage liquidity in the market as the aggregate redemption value of the Debentures on maturity, of USD72,955,002, inclusive of interest, is significant in the context of our economy.
  5. Early redemption over an extended period, in accordance with the requirements of the Reserve Bank of Zimbabwe, benefits the Company in that the cash outflows can be managed over an extended period of time.

The Company said that the opportunity to offer Debentures for early redemption shall be available to Debenture holders during the period commencing at 0900 hours on 19 July 2021 and ending at 1600 hours on 2 August 2021.

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