ECONET Wireless Zimbabwe has published a circular to its shareholders, approved by the Zimbabwe Stock Exchange (ZSE).
In the circular, the company explains its rationale for the proposed transition from the ZSE Main Board to an Over-the-Counter (OTC) trading system administered by Victoria Falls Stock Exchange.
In the published circular, the company says that its market value, at the time of publication of its first cautionary announcement, of about $500 million on the ZSE, was less than 20 percent of its true market value, based on comparative valuation criteria of other mobile telecommunications companies in Africa.
Econet points to the fact that, unlike most mobile companies listed elsewhere in Africa, the fact that it still owns all its tower infrastructure and has reintegrated its fintech business into the company are not considered in determining its 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 them 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 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 the 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 2 times the current price on the ZSE, and more than 3 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 listing 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 the 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 USD 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.