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Inside Strive Masiyiwa’s battle with shareholders for control of Econet

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Strive Masiyiwa

After years of brutal hyperinflation, Zimbabwe became known as a place where cash was almost worthless. Now, investors are fighting over the Strive Masiyiwa EcoCash, the country’s homegrown PayPal-like service that has zoomed into the economy’s cash void.

The adversaries in the shareholder dispute include U.S. venture capitalist Paul Tierney, a former Peace Corps volunteer and former owner of D.C. United soccer team.

Along with his son Matthew, he accuses the man behind EcoCash, Strive Masiyiwa, a jet-setting philanthropist who sits on the board of Unilever and the Rockefeller Foundation, of trying to use an unusual debt-for-equity swap to grab a bigger piece of EcoCash now that it has become a key piece of monetary infrastructure.

Strive Masiyiwa is the founder and biggest shareholder of EcoCash’s owner, Zimbabwean cellphone operator Econet Wireless Zimbabwe Ltd.

The company’s shares, which trade on the Zimbabwe Stock Exchange in dollars, have increased their value nearly 10-fold in the past 18 months and were recently worth more than $7 billion on paper.

Representatives for Masiyiwa say the disgruntled shareholders are failing to understand the complexities of operating in one of the world’s most distorted economies.

After the collapse of the Zimbabwe dollar in 2009, the country adopted the U.S. dollar to stabilize prices. But since it can’t print them itself, the country is now so low on dollars that banks have stopped dispensing cash or transferring money abroad.

The government, under budgetary pressure, has essentially created quasi-U.S. dollars that exist only electronically in local bank accounts and are now coursing through the economy. But they are deeply devalued: On the black market, a $100 bill can cost as much as $350 in digital dollars.

Launched in 2011, EcoCash allows users to trade electronic dollars over their phones. Users set up a mobile wallet—either linked to a bank account or topped up through transfers from another user—and then use the service to make everyday payments by punching codes into the phone’s call function.

Eight out of 10 transactions in the Southern African nation—whether paying for milk, paying an electricity bill or buying fuel —are done using EcoCash, according to data from the Reserve Bank of Zimbabwe. In a country of 13 million people, the platform has more than eight million users.

“This is a very, very unique story in the world,” said Roy Chimanikire, Econet’s finance director. “This is an asset which basically is running the financial system of the country, that has stopped the country from collapse.”

The Zimbabwe government has encouraged electronic payments to help deal with the cash crisis but is trying to diversify beyond EcoCash, including by promoting the use of regular credit and debit cards.

EcoCash’s move into the heart of Zimbabwe’s financial and monetary system attracted international investors, among them the Tierneys, betting on an economic recovery following the ouster of longtime strongman Robert Mugabe in 2017.

But the currency crunch behind EcoCash’s meteoric rise is also at the root of the shareholder battle now gripping its parent company.

In February 2017, with Zimbabwe’s version of the dollar dropping in value and the company struggling to pay back foreign loans, Econet raised $130 million through a rights issue, in a mix of local quasidollars and real U.S. dollars.

Investors received shares for 5 cents and debentures, a debtlike instrument with an issue price of 4.7 cents. The debentures were meant to be paid back in six years.

Investors soon deemed the debentures worthless after the government blocked a plan to let Econet back them with dollars held abroad. Masiyiwa ended up holding 56% of all newly issued shares and debentures.

EcoCash’s usage has soared since then and so has its share price, trading as high as $2.85 in October.

In November, the company proposed converting the debentures into equity. Minority investors, some of whom bought shares after the rights issue, and thus didn’t own the debentures, cried foul.

“There is no justification for this blatant disregard for the rights of minority shareholders,” Paul and Matthew Tierney wrote in a Nov. 27 letter to the Zimbabwe Stock Exchange.

They said Strive Masiyiwa, already worth $1.7 billion according to Forbes, was using those debentures to grab a bigger stake in the company at a steep discount.

Strive Masiyiwa would turn the debentures he purchased for just $28 million in 2017 into shares valued around $1.3 billion on the day the conversion was proposed.

If the deal went through, it would lift Masiyiwa’s stake in Econet to 46.7%, from 42.6%, while diluting the holdings of investors who don’t own any debentures.

“MINORITY INVESTORS GET STIFFED…”

Other investors unhappy with the proposed conversion include Zimbabwean financial-services companies Old Mutual Zimbabwe and Imara Securities as well as South Africa’sCoronation Fund Managers Ltd., Sanlam Ltd. and Allan Grey, which together own some 25% of Econet.

Strive Masiyiwa “treats Econet as his personal company and minority investors get stiffed,” said Peter Townshend, portfolio manager for Sanlam’s Africa Equity Fund.

Amid the investor outcry, a vote on the proposal has been delayed twice, as recently as Dec. 14. Econet says it is still considering the debenture swap but hasn’t set a date for a fresh shareholder vote.

Econet and representatives of Masiyiwa’s holding company said the proposed conversion would benefit a big majority of Econet’s shareholders and reward investors who helped the company during tough times.

Complicating matters, in December, Econet spun off the EcoCash business, along with some smaller financial-services ventures, into a separate company listed on the Zimbabwe Stock Exchange.

Dubbed Cassava Smartech, it immediately became the country’s largest traded company with a market capitalization of $3.8 billion.

These gains may just be mostly on paper anyway. Zimbabwe investors have piled into assets denominated in dollars, including stocks, that they think may retain value in case the country decides to depeg from the U.S. dollar.

“We have a U.S. dollar operating in Zimbabwe, but actually that U.S. dollar is not convertible into a U.S. dollar outside Zimbabwe,” said Chimanikire, Econet’s finance director. “So it’s not really a U.S. dollar.”

Wall Street Journal

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BUSINESS

Zimbabwe agrees to pay $3.5 billion compensation to white farmers

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Zimbabwe White Farmers

Zimbabwe agreed on Wednesday to pay $3.5 billion in compensation to Zimbabwe white farmers whose land was expropriated by the government to resettle black families, moving a step closer to resolving one the most divisive policies of the Robert Mugabe era.

But the southern African nation does not have the money and will issue long term bonds and jointly approach international donors with the farmers to raise funding, according to the compensation agreement.

Two decades ago Mugabe’s government carried out at times violent evictions of 4,500 Zimbabwe white farmers and redistributed the land to around 300,000 Black families, arguing it was redressing colonial land imbalances.

The agreement signed at President Emmerson Mnangagwa’s State House offices in Harare showed white farmers would be compensated for infrastructure on the farms and not the land itself, as per the national constitution.

Details of how much money each farmer, or their descendants, given the time elapsed since the farms were seized, was likely to get were not yet clear, but the government has said it would prioritise the elderly when making the settlements.

Farmers would receive 50% of the compensation after a year and the balance within five years. Finance Minister Mthuli Ncube and acting Agriculture Minister Oppah Muchinguri-Kashiri signed on behalf of the government, while farmers unions and a foreign consortium that undertook valuations also penned the agreement.

“As Zimbabweans, we have chosen to resolve this long-outstanding issue,” said Andrew Pascoe, head of the Commercial Farmers Union representing  Zimbabwe white farmers.

The land seizures were one of Mugabe’s signature policies that soured ties with the West. Mugabe, who was ousted in a coup in 2017 and died last year, accused the West of imposing sanctions on his government as punishment.

The programme still divides public opinion in Zimbabwe as opponents see it as a partisan process that left the country struggling to feed itself. But its supporters say it has empowered landless Black people. Mnangagwa said the land reform could not be reversed but paying of compensation was key to mending ties with the West. Reuters

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Old Mutual’s Share Price Is Focus in Zimbabwe’s Currency War

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Old Mutual Shares Zimbabwe

The share price of one of Africa’s oldest insurers is taking centre stage in Zimbabwe’s battle to bring order to its chaotic foreign-exchange system.
In the latest in a series of attempts to stabilize its currency, the government wants to eradicate the Old Mutual Implied Rate.

The gauge, used by domestic companies to determine the future cost of goods and services, calculates a potential forward rate for the Zimbabwe dollar by measuring the difference between Old Mutual Ltd.’s share prices in Johannesburg, London and Harare.

The indicator is among many “contrived phantom exchange rates” in use that “conspire to defeat fiscal policy,” the government said in a June 26 edict that halted trading on the Zimbabwe Stock Exchange and stopped most mobile-banking transactions.

The OMIR is one of the multiple exchange rates Zimbabweans use daily to navigate the nation’s myriad economic challenges, including annual inflation of almost 800%.

A perennial shortage of cash means anyone who has physical banknotes is able to negotiate exchange rates with brokers who pay the funds onto mobile-money platforms. The brokers can then sell the hard cash at an even higher rate.

That’s resulted in a widening gap between the official rate of 63.7 per U.S. dollar, and the amount at which it trades on the streets of Harare, which is now at 100.

“People have relied on making money from buying and selling Zimbabwe dollars, and not from any real production,” said John Robertson, an independent economist based in Harare. “It’s what has created these distortions.”

The OMIR also feeds into the black-market Zimbabwe dollar rate, which the nation’s bourse uses, along with the official rate, to determine the value of stock prices.

Old Mutual, founded in Cape Town in 1845, is not involved in determining the rate. Market participants take the company’s share prices in South Africa, the U.K. and Zimbabwe, convert each of them into the U.S. dollar, which should typically trade near par.

The finance minister, however, in March restricted trading in the shares of Old Mutual and two other companies by making the stocks no longer fungible or regarded as being equal in value to those traded on other exchanges, in a bid to prevent outflows caused by the dual listings.

Despite the move, investors poured into Old Mutual, using it as a proxy to the U.S. dollar because of its offshore listings, pushing the Zimbabwe-listed stock up 90% since the beginning of May. The shares in Johannesburg and London were little changed, resulting in the implied rate doubling to 122 as the gap between the securities widened.

Zimbabwe’s benchmark industrial index has risen more than sevenfold this year, reaching a record on June 24, and giving the overall bourse a market value of about 229 billion Zimbabwean dollars ($3.6 billion). None of the stocks in the 57-member index has declined this year as Zimbabweans seek a haven from runaway price increases and the weaker currency, which has slumped to 63.7442 per U.S. dollar after a 25:1 peg put in place since March was abandoned.

Suspend Listing
Authorities now want to eliminate the OMIR before allowing any trading to resume on the Zimbabwe Stock Exchange, people familiar with the matter said, asking not to be identified because the talks are private. The OMIR was the focus of various meetings on Monday between members of Zimbabwe’s stockbrokers’ association, the stock exchange, the Securities and Exchange Commission and the Treasury, the people said.

Measures being considered to include suspending Old Mutual’s shares from the Harare-based bourse, having the securities traded only in dollars, or moving the listing to the Victoria Falls Stock Exchange, a market that will only trade in foreign currency once it opens later this year, the people said.
Nick Mangwana, the government’s spokesman, referred queries to the finance ministry. Several calls and text messages sent to Finance Minister Mthuli Ncube and central bank Governor John Mangudya seeking comment weren’t answered.

“There has not been any official communication from authorities in Zimbabwe to Old Mutual,” the Johannesburg-based company said in an email “We have asked our local subsidiary to reach out to our stakeholders in Zimbabwe to try and understand the circumstances around ZSE closure and other related matters.”

Discussions over the halting of trade on the stock exchange are ongoing and the outcome is still uncertain, SEC Chief Executive Officer Tafadzawa Chinamo said by phone. Zimbabwe Stock Exchange CEO Justin Bgoni said on Sunday that the bourse would wait for guidance from regulators.

In comments at a briefing after a cabinet meeting on Tuesday, the finance minister said that stockbrokers should assure their clients that their investments in the stock market are safe and that the bourse will reopen once investigations are complete. Bloomberg

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Zimbabwe government suspends mobile money transactions

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Nick Mangwana

Zimbabwe government has, with immediate effect, suspended all monetary transactions on phone-based mobile money platforms to facilitate investigations that will lead to the arrest and prosecution of people responsible for sabotaging the economy.

In a statement this evening, Secretary for Information, Publicity and Broadcasting Services, Mr Nick Mangwana, said the measures will include the suspension of all trading on the Zimbabwe Stock Exchange.

The suspension will be in place until mobile money platforms have been reformed to their original purpose and when all the present phantom rates have converged into one “genuine rate that is determined by market forces under the foreign currency auction system which was launched by the Reserve Bank of Zimbabwe” on June 23. Operational modalities and details of the envisaged measures will be announced by the relevant monetary, regulatory and law enforcement authorise in the next few days.

The government will ensure that prudent measures are put in place to mitigate and prevent any collateral damage that the interventions may cause to the innocent public that was using the mobile money platforms. The Herald.

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