Staff Writer
Econet Wireless Zimbabwe has moved to explain the rationale behind its proposed transition from the Zimbabwe Stock Exchange (ZSE) Main Board to an Over-the-Counter (OTC) trading system administered by the Victoria Falls Stock Exchange (VFEX), citing persistent undervaluation and liquidity constraints on the local bourse.
In a circular to shareholders, the telecommunications group said its shares were significantly undervalued on the ZSE, with its market capitalisation at the time of its first cautionary announcement standing at about US$500 million, less than 20 per cent of what the company considers its true market value based on comparative valuation metrics of mobile telecommunications companies across Africa.
“Unlike most mobile operators listed elsewhere on the continent, the company still owns all of its tower infrastructure and has reintegrated its fintech operations into the core business. These strategic assets and structural features are not being recognised by the market under prevailing ZSE trading conditions,” reads part of the circular.
Econet attributed part of the valuation gap to a lack of liquidity on the ZSE, particularly following the exit of foreign investors who were previously among the exchange’s largest participants.
According to Econet, the thin trading environment has distorted price discovery and left shareholders vulnerable.
“The lack of liquidity has resulted in shareholders who need to sell their shares being forced to do so at punitively low prices, leading to a loss of value,” the company said.
To address this challenge, Econet has proposed migrating from the ZSE Main Board to an OTC trading platform administered by VFEX.
Under the proposal, Econet will remain a public company and will continue to publish publicly available financial information, and the key feature of the proposed OTC system is the introduction of a minimum trading price, determined by the company’s fundamentals.
Econet said it intends to set a floor price of 50 US cents per share, which is more than double the company’s prevailing share 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 proposed move.
“In addition, Econet will act as a buyer of last resort at the set floor price, a mechanism it believes will protect shareholder value and prevent forced disposals at distressed prices,” the company said.
The company added that the OTC model has been structured to benefit all shareholders without discrimination, regardless of the number of shares held or the volume of shares they may wish to trade.
According to the circular, the proposed transition is subject to shareholder approval, as the group will convene a shareholder referendum, as required under the ZSE Listings Requirements, to seek approval for the move.
The company emphasised that the proposal does not compel any shareholder to sell their shares; instead, Econet is encouraging shareholders to remain invested in order to realise the long-term value of the business.
“For shareholders who may nevertheless wish to exit, they will be paid out the value of their shares in line with the current rules of the exchange,” said Econet.
In addition, the company said such shareholders will receive their proportionate allotment of Econet InfraCo shares, a new business being spun out of Econet Wireless Zimbabwe and proposed to be listed on the VFEX at a valuation of US$1 billion.
“Shareholders will also have the option to sell part of their shareholding at the point of migration while retaining an investment in the business, giving them multiple value-realisation options that were previously unavailable,” reads part of the circular.
In the circular, Econet said the proposed restructuring would not disadvantage capital market intermediaries, as stockbrokers will continue to trade Econet shares on behalf of their clients on the VFEX OTC platform, while Econet InfraCo will be listed on the VFEX main board.
“This will protect broker incomes and support the continued viability of the capital markets,” the company said.
Econet also said VFEX is also expected to benefit from the transaction through the listing of Econet InfraCo, which will increase the depth of the US dollar-denominated exchange.
The company noted that the broader Zimbabwean capital markets, regulated by the Securities and Exchange Commission, are also expected to benefit overall from the proposed transactions, which will be put to shareholders at the company’s forthcoming extraordinary general meeting.
