Econet explains rationale for planned migration to VFEX

STAFF WRITER

Econet Wireless Zimbabwe has issued a circular to shareholders, approved by the Zimbabwe Stock Exchange (ZSE), outlining the rationale behind its proposed migration from the ZSE main board to an Over-the-Counter (OTC) trading platform administered by the Victoria Falls Stock Exchange (VFEX).

The company said its market capitalisation at the time it released its first cautionary announcement — estimated at about US$500 million on the ZSE — represented less than 20 percent of its intrinsic value, based on comparative valuation benchmarks of listed mobile telecommunications operators across Africa.

Econet argued that its valuation on the ZSE fails to adequately reflect key value drivers that are typically recognised in peer markets. These include the fact that, unlike most listed mobile operators on the continent, Econet retains ownership of its entire tower infrastructure and has fully reintegrated its fintech operations into the core business — assets and capabilities the group says are not properly factored into its current market valuation.

The company cited, possibly, the lack of liquidity on the ZSE as contributing to the low valuation, particularly following the exit of foreign investors who used to be some of the biggest investors on the ZSE.

The lack of liquidity has resulted in shareholders who need to sell their shares being forced to sell their shares at punitively low prices leading to a loss of value.

As part of its transition to an OTC trading system, Econet has proposed a solution which it believes will benefit all its shareholders, without discrimination, regardless of the number of shares they hold in the company or the number of shares they wish to trade.

Econet plans to migrate from the main board of the exchange to what is known as an Over The Counter (“OTC”) system, administered by the VFEX.

This means Econet will remain a public company, producing publicly available financial information. Under the OTC system, the company will be able to set a minimum price, which is determined by fundamentals of the company, at which its shares will be tradable. The company will also act as a buyer of last resort at this floor price – which it has set at 50 cents; more than two times the current price on the ZSE, and more than three times the 90-day weighted average price, prior to the release of the first cautionary statement announcing the to move to the new OTC trading system. The company intends to hold a shareholder referendum to consider this proposal, as required by the ZSE listings requirements.

The proposal being put to shareholders does not compel any shareholder to sell their shares. To the contrary,

Econet is urging its shareholders to remain in the company for them to realise the long-term benefits of being a shareholder in the company.

However, to the extent that they may wish to exit, they will be paid out the value of their shares, as determined under the current rules of the exchange, plus their proportionate allotment of Econet InfraCo shares, a new business that is being spun out of Econet Wireless Zimbabwe to be listed on VFEX at a proposed valuation of $1billion.

Shareholders will also be able to sell some of their shares, at the point of migration and still remain invested in the company, giving shareholders many options to consider, all of which result in greater value realisation that would not have been possible previously.

Stockbrokers will also continue to benefit from the proposed migration as they will still be able to trade their shares on behalf of their client portfolios in Econet, which will be traded on the VFEX OTC platform, and Econet Infraco, which will be listed on the main bourse of the VFEX. This will protect their incomes ensuring viability of the capital markets.

The Victoria Falls Stock Exchange is also expected to benefit from the proposed transactions through the listing of a new company, Econet InfraCo, increasing the depth of the new US$ exchange.

Overall, the Zimbabwe capital markets, regulated by the Securities and Exchange Commission, will benefit from the proposals being put forward by the company to its shareholders at their next EGM.