Econet shares surge on hope of mega swap deal

PHILLIMON MHLANGA

The decision to buy back six Ecocash Holdings Limited assets by Econet Wireless Zimbabwe, the country’s largest mobile network operator, a move which may have been prompted by significant shifts in the market environment, has seen  a surge of  more than 80%  in its share price in the past few weeks, Business Times can report.

The share price of Econet Wireless Zimbabwe, which was trading at ZWL$1369 on January 16, 2024, the day the scheme of reconstruction was revealed, surged  to ZWL$2527 yesterday. Additionally, the share price of Ecocash Holdings surged to ZWL$727 yesterday from ZWL$215 on January 16, 2024.

Econet Wireless Zimbabwe will now assume control of the mobile money division of Ecocash, the on-demand service VAYA Technologies, Econet Insurance, Econet Life, MARS Zimbabwe, and Maisha Health. The separately listed companies announced that they are planning to undergo a scheme of reconstruction, which involves the issue of ordinary share capital by a company to the shareholders in another company. Ecocash Holding’s sole subsidiary, Steward Bank, will continue to exist, which may indicate that a new brand is required.

In a cautionary statement to shareholders and investing public, Ecocash Holdings Group company secretary, Charmaine Daniels said.“…. Shareholders are ad

vised that EcoCash Holdings Zimbabwe Limited and

Econet Wireless Zimbabwe Limited, being companies under the same control, are engaged in negotiations that may result in the transfer to Econet of the following financial

technology businesses: EcoCash (Private) Limited, VAYA Technologies Zimbabwe (Private)

Limited, Econet Insurance (Private) Limited, Econet Life (Private) Limited, MARS Zimbabwe

(Private) Limited, and Masha Health Fund (Private) Limited in exchange for Econet shares that

may be distributed to the EcoCash Holdings Limited shareholders on a pro rata basis.

Accordingly, shareholders are advised to continue exercising caution when dealing in the

company’s securities until a further announcement is made.”

Investors in Ecocash will receive Econet shares in exchange under a swap agreement.

Essentially, the entities that will be absorbed by Econet Wireless Zimbabwe, there are taking a significant  component  back to Econet Wireless Zimbabwe.

Interestingly, Econet and Ecocash, which were formerly a single company, intend to reunite once more after their 2018 split.

The new company was renamed to Ecocash Holdings in 2021 after being listed under the name Cassava Smartech.

The Group company secretary for Econet Wireless Zimbabwe, Tatenda Ngowe, has stated that the restoration plan will not lead to Ecocash Holdings being delisted from the Zimbabwe Stock Exchange.

Some market analysts, who  preferred anonymity, believe the move was caused by the dramatically altered market conditions.

A few years back, Ecocash was transferring large sums of money across national agent networks. However, in 2019, the Reserve Bank of Zimbabwe, acting on behalf of the government, outlawed agents and directed payment processors and retailers to stop offering cash-in and cash-out services. Actually, the RBZ forced  Ecocash  to close all of its agent lines once suspended in 2020. The mobile money agents were accused by the central bank of ‘sabotaging the economy’,

Many analysts think that outlawing all ecocash agents severely harmed the company and cost it a lot of money.

As a result, Ecocash Holdings has consistently reported losses, and its most recent financial statements showed that company had barely broken even.

Mobile money is unrestricted in several other nations, including Ghana, Kenya, and many more.

Now that mobile money is subject to strict rules, several analysts—all of whom wished to remain anonymous—think it makes no sense to establish Ecocash as a stand-alone company without the backing of Econet Wireless Zimbabwe, the parent company.

An additional inquiry pertains to the profitability of certain of the firms that Econet Wireless is reabsorbing. If not, Econet Wireless might be burdened by them.

The other question analysts raised is  Steward Bank profitable and sustainable on its own?

Certain investment analysts recommended against selling off the share  because they believed Econet Wireless would quickly grow large again overnight.

On the other hand, they stated that the management will be under a lot of pressure due to the growing portfolio.

They therefore think that the planned scheme of reconstruction  is mostly a reaction to the altered market conditions.

On the other hand, some others told Business Times yesterday that the reconstruction plan has been favorably received by the market.

The greatest sign was the rate at which the share price of Econet Wireless Zimbabwe surged following the initial declaration of the rehabilitation plan on January 16, 2024.