eBusiness Weekly
Kudzanai Sharara
If this year’s shareholder participation is anything to go by, then the days of the passive shareholder are well and truly over. However, if this was a once in a blue moon thing, then the year 2017 will probably go down as the year Zimbabwean shareholders, both major and minority, flexed their muscles.
As an observer, sitting in an AGM, one often notices how the whole process is well choreographed with shareholders only interested in putting their hands up to vote for the resolutions before them, even the questionable ones. You hardly see anyone seeking even an explanation with lazy institutions assigning their proxies to chairmen without a sideways glance. As a result, this allows directors to get away with more than they ought. But to some extent, this year has been an exception with shareholders refusing to roll over.
It all started with Econet’s $130 million rights issue to facilitate the servicing of its foreign debt. While the deal was said to be good for the company, the contentious issue was the requirement that all shareholders were to deposit proceeds of the rights issue and debenture scheme into an Afreximbank bank account, held in the UK.
“It is a condition of the proposed Rights Offer that the members shall follow their rights by paying the proceeds of the offer in United States Dollars directly outside Zimbabwe into the Company’s debt service account with AFREXIM Bank outside Zimbabwe. Payment will be recognised in cleared funds reflecting in the designated account on or before Wednesday 22 March 2017,” Econet said then.
This riled some local shareholders, who said they could not pay offshore for the shares. The Securities and Exchange Commission of Zimbabwe (SECZ) was also in agreement arguing that local investors that do not have access to foreign currency would be denied an opportunity to follow their rights. Opinion pieces were written in support and against the deal. Arguments were also put across but eventually the voice of the minority shareholder prevailed with Econet making sure everyone interested in following their rights was able to do so. Months later, the controversy that surrounded the Econet deal may seem like distant memories, but the shareholder activism “inspired” by those events still seems to be going strong albeit in a different way.
At ZB, shareholders led by institutional investor NSSA voted against Nicholas Vingirai’s re-election to the board as the fight for control of the financial institution continued. At the time of the AGM, NSSA was ZB’s largest shareholder with a 37.79 percent stake, with Vingirai’s Transnational Holdings Limited (THL) being the second biggest, with 19.79 percent. Since reclaiming his shareholding, Vingirai has faced stiff resistance from NSSA as the two, tangle over board appointments and his quest for a bigger stake.
Vingirai is claiming an additional 10.9 million ZB shares, or 6.21 of the financial group’s total issued shares. The fight has been as nasty as they come, with shareholders also asking management at ZBFH to reverse a $658,699 dividend it paid to THL on January 23, 2017. Vingirai is however not taking this lying down. He has since threatened to pull out of his agreement with Government relating to his shareholding in ZBFH – citing NSSA’s move to block its full implementation.
From the ZBFH saga, the latest shareholder tiff is at CFI where one of the major shareholders Nicholas van Hoogstraten through his Messina Investment vehicle is reportedly pulling all stops to scuttle a mandatory offer to minority shareholders made by the other major shareholder Stalap Investments owned by Zimre Holdings Limited. Here is a bit of some background to the squabbles. At the height of the spat is van Hoogstraten’s attempt to seek the reversal of an $18 million deal involving CFI Holdings Limited. The businessman believes CFI violated ZSE listing rules when disposing Langfords Estates to Fidelity Life.
Van Hoogstraten claims that there was conflict of interest in the transaction after Zimre Holdings Ltd (ZHL), which holds shareholding in both Fidelity and CFI, voted at the EGM, while NSSA was also in conflict of interest when it cast its vote. Sensing the need to speak with one voice against the van Hoogstraten threat, NSSA sold its direct 12.93 percent stake in CFI to ZHL, a company it has a significant stake in. The intention is to gain control and a mandatory offer of 22 cents per share has since been tabled. However van Hoogstraten is having none of it and has reportedly made the whole mandatory offer a nonety. He has reportedly pushed the share price to 37.25 cents, a 70% premium to the mandatory offer price, leaving the deal as good as dead.
An old African proverb states: “When two elephants fight, it is the grass that suffers most,” but minority shareholders at both ZBFH and CFI might have experienced everything else but suffering. Share prices for both counters are the leading risers on the local bourse thanks to the shareholder tiff between the major shareholders as outlined above. As at July 25, 2017, ZBFH was 276% higher year-to-date while CFI had amassed 282% year-to-date. Given that chances of resolving these issues amicably are slim, I wouldn’t fault investors who will take this opportunity to jump ship, the price is good for a troubled firm that until recently has been recording losses and massive loss of value.
But what does all this mean for our capital markets? Is it healthy? Is the regulator comfortable with all this?
Some of the deals were as controversial as they come, putting the regulators under scrutiny and considerable pressure. Take the Econet deal for instance, which claimed the scalp of ZSE CEO Alban Chirume who was sent on an indefinite leave to pave way for investigations with regards the deal, and till now he is not back in Office. The decision to send Chirume on forced leave came after board members had caucused following what was alleged to be Chirume’s defiance of the Board’s directive.
Econet finally baulked under shareholder pressure and eventually made arrangements to allow local based shareholders to follow their rights issue using local banking channels. This was deemed by many as a victory for shareholders demanding better treatment.
SECZ also had to get its hands dirty, expressing concerns that the capital-raising initiative could result in the unfair treatment of local investors. This resulted in Econet being summoned by the listing committee to explain issues relating to exchange control and the funding structure of the capital raise.
“We understand the challenges that companies are going through but that should not be the reason to override shareholders’ interests,” said SECZ chief executive Tafadzwa Chinamo at the time of the controversy. At least he remained in control of things and got to keep his job. Not because it was under any threat, but Alban was not so lucky.
