ECONET Wireless Zimbabwe is inviting its debenture holders for early redemption to allow the Reserve Bank of Zimbabwe to manage liquidity as the aggregate redemption value of US$72,9 million on maturity is huge for the economy.
A debenture is a type of debt instrument that is not backed by any collateral but by creditworthiness and reputation of the issuer and is issued by corporates to raise capital for their projects.
In a public notice, the country’s largest telecommunications firm said:
“Notice is hereby given to the debenture holders 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 Trust Deed dated 18 January 2017 and the circular under which these debentures were issued dated 17 January 2017.”
Among other reasons for early redemption of the debentures, Econet said 22 percent of the debentures were held by local holders and the balance by foreign holders.
“If the company waits for the maturity date, debenture holders may at that time be prejudiced as they will all have to queue up for the scarce foreign currency at the same time.
“This could put pressure by increasing the demand for foreign currency on the foreign exchange auction.
“Thus, the opportunity for the early redemption of the debentures allows for the redemption of the debentures in smaller tranches over an extended period of time,”
It is believed that early redemption gives those debenture holders who wish to exit early, an opportunity to do so and to apply their funds to alternative investments.
“Early redemption of the debentures will give the company an opportunity to strengthen its balance sheet by reducing the amount of its foreign currency exposure and to minimise any future exchange losses that might result from the weakening of the Zimbabwe dollar against the United States dollar.”
Through early redemption, Econet said this affords RBZ, which has insisted on an extended redemption period, the opportunity to manage liquidity in the market as the aggregate redemption value of the debentures on maturity, of US$72,9 million, inclusive of interest, is significant in the context of the economy.
The company has sought and obtained the further approval from RBZ for the early redemption of the debentures in Zimbabwe dollars calculated at the prevailing interbank rate.
However, Econet has noted that in view of the significance of the amount involved, the Reserve Bank stipulated that the early redemption should be done over an extended period of time.
The monetary authority has approved the period April 2021 to April 2023 for the early redemption of the debentures.
According to clause 2.2 of the Debenture Trust Deed, it provides that the debentures shall be redeemable at the end of six years or earlier at the discretion of the board.
“In the case of earlier redemption, the debentures shall be redeemed at a price determined by adding the cumulative interest calculated at a coupon rate of five per annum and compounded annually on the subscription price up to date of redemption,”
The opportunity to offer debentures for early redemption shall be available to debenture holders next week Monday while tomorrow is the record date for determining who is entitled to participate in the opportunity for early redemption.
The debentures shall be redeemed at the face value of 4,665 US cents each plus interest thereon calculated at a coupon rate of 5 percent per annum and compounded annually from the date of issue up to the date of payment, to be converted to local currency at the prevailing interbank rate as at the date of payment.
“The date of payment shall be deemed to be the date of redemption, notwithstanding that the debenture holder’s offer of redemption may have been accepted by the company on an earlier date.
“In terms of paragraph 2.3 of the Debenture Trust Deed, any taxes on the interest on the debentures shall be to the account of the company.
“The interest on the debentures of 5 percent per annum compounded annually shall be net of any taxes,”
However, debenture holders are advised to consult their own tax advisers if in any doubt about their respective tax positions.
“The early redemption of the debentures does not require any prior approvals of the Zimbabwe Revenue Authority,”
it said. — @okazunga.