Econet Wireless Zimbabwe has unveiled plans to reacquire the financial technology businesses it demerged to EcoCash Holdings in 2018.
This move has ignited interest within the market, with analysts eager to understand the rationale behind the reunion.
According to the announcement released yesterday, the Zimbabwe Stock Exchange-listed Econet believes that by bringing fintech businesses, including heavyweights like EcoCash (mobile money) and VAYA, back under its control, it will create a more formidable competitor.
The company sees an opportunity to leverage its extensive subscriber base of over 14 million and established delivery channels to propel the fintech businesses to new heights.
According to Econet, the current market landscape has shifted significantly since the 2018 demerger.
Regulatory changes and evolving market dynamics have rendered some of the initial justifications for the separation obsolete.
By reuniting the entities, Econet argues that it can streamline operations, improve efficiency and offer a more comprehensive suite of products and services to its customers.
The telecommunications group said the combined entities had lost significant value post the 2028 demerged.
Econet highlights a concerning decline in the combined Net Asset Value of the entities, dropping from over US$810 million pre-demerger to a current value of less than US$450 million.
Liquidity for EcoCash Holdings on the stock exchange has also dwindled. Econet believes the reunion can reverse these negative trends.
“Once the restructuring has been finalised, some of the duplicated activities will be eliminated leading to quicker turnaround decisions and cost efficiencies,” reads part of the announcement.
The proposed transaction involves a combination of Econet’s treasury shares and cash for the fintech businesses. Since the book value of the businesses falls below 50 percent of Econet’s book value, shareholder approval is not required, noted Econet.
On the part of EcoCash Holdings, the transaction will however, require shareholder approval.
The total consideration measured against the market capitalisation of EcoCash Holdings results in a percentage ratio of more than 30 percent.
“Accordingly, the transaction is classified as a Category 1 Transaction in terms of paragraph 253(3) of the ZSE Listings Requirements and requires an ordinary resolution approval by shareholders at the EGM in terms of paragraph 260(2) of the ZSE Listing’s Requirements,” reads part of the EcoCash abridged circular to shareholders released separately yesterday.
The EGM will be held on April 17, 2024.
Financial analysts are cautiously optimistic about the move. They see potential benefits in several areas, including increased market share in mobile money and digital financial services, cross-selling opportunities within Econet’s vast subscriber base, and improved ability to navigate the evolving regulatory environment. However, integration issues and securing regulatory approval remain challenges.
Financial Economist Malone Gwadu cited limited uptake of fintech products in Zimbabwe, structural rigidities, and a tough economic environment as factors contributing to the underperforming subsidiaries post the demerger.
He suggested this reacquisition allows Econet to absorb losses and streamline operations for potential realignment in the face of a challenging economic climate.
“This is a reflection of the limited uptake of fintech products in Zimbabwe and beyond,” said Gwadu.
“So the unbundling reversal entails Econet Wireless absorbing back poorly performing subsidiaries and cutting their losses for possible re-alignment and streamlining of operations especially in the current economic environment of limited business activity as a reflection of the tough economic environment we are faced with.” – Herald
