Few days ago Econet Wireless Zimbabwe (Econet) issued a notice to its bondholders offering to repurchase the bonds issued on January 17, 2017 in advance. This means that instead of waiting for them to mature in about three years, holders of the debentures can redeem them now. The debentures have a market value of approximately US $ 73 million including interest; an amount so large that the RBZ is involved in the process in order to “manage the liquidity of the market”.
Notice is hereby given to the Debentureholders of Econet Wireless Zimbabwe Limited inviting them to offer their Debentures to the Company for early redemption in accordance with the provisions of the Debenture Indenture dated January 18, 2017 and the Circular. pursuant to which these debentures were issued on January 17, 2017.
Although the early redemption of debentures held by local and foreign debentureholders was pre-approved by the Reserve Bank of Zimbabwe upon the approval of the circular issued on January 17, 2017, the Company has requested and obtained the additional approval from the Reserve Bank. from Zimbabwe for
the early redemption of debentures in Zimbabwean dollars calculated at the prevailing interbank rate. However, given the large amount involved, the Reserve Bank of Zimbabwe stipulated that the prepayment should be made over an extended period and approved the period.
April 2021 to April 2023 for the early redemption of the debentures.
Part of Econetnotice of call for debentures
What is an obligation
When you’re a big company like Econet (just assume we are talking about Econet Wireless Zimbabwe when we say Econet in this article) you have three main ways to raise funds for large investment projects:
- Issue additional shares of the class you choose to issue depending on the law of the country. Usually this takes the form of what is called a capital increase where shares are offered to existing shareholders in order to preserve the current shareholding structure. Existing shareholders must first be offered the shares if they decline, they can then be sold to third parties.
- Obtain a loan from a financial institution. Econet had one such loan from Afreximbank and another from the China Development Bank. They issued debentures to reorganize these loans.
- Issue bonds. Debentures are almost like stocks. They involve a piece of paper / similar written arrangement being given to members of the public in exchange for money handed over to Econet. Unlike stocks, they are treated as a loan and receive interest instead of dividends. This loan must be paid at each maturity unlike a dividend which, depending on the shares in question, may be waived.
NB Some local publications which have written on the matter claim that these debentures are by definition unsecured loans. This is clearly wrong. Bonds can be bare (i.e. unsecured on the assets of the issuing company)floating (guarantee on unspecified assets of the company) or even mortgage bonds (guarantee on the company’s real estate). It is not clear what type of debentures these are from Econet.
In any event, as already discussed above, the reason Econet is proposing to redeem these debentures early is in order to manage the foreign currency obligations that arise from this redemption. RBZ will help them complete the phased buyout to minimize the likely seismic effect of moving US $ 73 million at any given time.
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