Storm over Econet $130 million rights offer

Pension funds say the $130 million rights issue by Econet Wireless Zimbabwe will dilute their shareholding, as they cannot follow their rights, warning the exercise will impoverish pensioners and soon-to-retire members.

Econet shareholders are set to meet tomorrow to approve a $130m rights issue meant to raise money to pay foreign obligations, which the company has failed to do due to critical shortages of foreign currency in the country's nostro accounts.

In terms of the rights offer, shareholders shall be offered, pro rata, to their shareholdings, 1 082 088 944 ordinary shares plus 263 050 614 Class A shares at a subscription price of five cents each on the basis of circa 82 ordinary shares for every 100 shares already held.

Under the terms of the offer, members have to follow their rights by paying the subscription price of the shares and linked debentures in United States dollars directly outside Zimbabwe into the company's debt service account with the Africa Export and Import Bank.

This has riled pension funds, who cannot follow their rights under the current set up.

The Zimbabwe Association of Pension Funds (ZAPF) said pension funds generally do not hold funds or money offshore and the manner of following the rights is very direct in that a payment has to be made to an offshore bank account as specified in their circular.

"The current Pensions Act does not allow for local Pension Funds to make offshore payments and as such, local pension funds are, therefore, hindered from exercising their rights," ZAPF spokesperson, Noel Zvareva said in written responses to NewsDay.

He said there was fear that by not following their rights, local Pension Funds would be significantly diluted to the detriment of member pension values.

‘Furthermore, the rights offer at 82 shares for every 100 held at five cents is severely discounted, such that any shareholder not participating will be prejudiced, which directly hits the members," Zvareva said.

"It must be noted that currently, there is a commission of inquiry into low member pension values after hyperinflation, which was set up by the President of the Republic of Zimbabwe and, as ZAPF, we fear that a transaction, which results in diminution of values, will further adversely affect poor pensioners and soon-to-retire members."

Pension funds invest part of the money from members in buying shares listed on the Zimbabwe Stock Exchange.

He said ZAPF was of the view that exchange control approval should be a condition precedent to the transaction so that local pension funds can follow their rights.

"Further to this, the rationale for the rights issue is the retirement of debt, wherein Econet is seeking to raise $130m and yet the debt schedule indicates that only $37m is due by December 31, 2017 and the balance in later years. It would, therefore, make sense for a consideration to be made for a phased approach to the retirement of the debt or the transaction," the ZAPF spokesperson said.

Zvareva said the association had taken an active role in encouraging its members to incorporate environmental, social and governance (ESG) factors in their investment decision-making.

"This is in-line with global trends towards responsible and sustainable investing, and entails incorporating relevant ESG guidelines in pension fund investment approaches. As asset owners, pension funds need to be more alive to shareholder activism and it should not take the market by surprise when pension funds voice concern. In ZAPF's view, the period for passive approaches to investing needs to be a thing of the past," he said.

The concern by pension funds comes as Econet share price continued its free-fall, trading at 15,55 cents yesterday from 30 cents recorded on January 17, the day the telecom firm announced plans to raise $130m from existing shareholders.

This means that the price has fallen by about a half, further eroding the shareholder value of the stock.