Shareholders bail out Ecsponent
R2.3BN: ENTER INTO DEBT-FOR-EQUITY AGREEMENT
It’s remains uncertain whether investors will recoup their money. Two options
The around 2 800 preference shareholders, many of them pensioners, had to vote to either allow their preference shares to be converted into ordinary shares in the group or for an alternative new hybrid preference share scheme.
Ecsponent’s recently appointed CEO George Manyere said that most preference shareholders voted for the ordinary share option. This would see R1.8 billion in debt converted to ordinary equity.
“Around 22% of preference shareholders opted for hybrid preference shares. This is valued at around R500 million; however, it also qualifies as equity under IFRS [International Financial Reporting Standards] rules,” he noted.
Manyere said he was pleased that around 67% of eligible preference shareholders participated in the voting. “This is reflective of the open and transparent engagement that Ecsponent’s new management team has had with preference shareholders over the past few weeks and demonstrates the greater involvement stakeholders will have in the business.”
When news first broke of Ecsponent’s expected default to preference shareholders in February, investment analysts including Simon Brown and Anthony Rocchi warned that these shareholders stood to lose out even more if their preference shares were converted to “nominal” ordinary shares in the group.
Ecsponent’s share price was at just 6 cents on the JSE on Wednesday, valuing the group at around R65 million.
Having already lost out on receiving dividends, the move by most preference shareholders at Wednesday’s meeting to go for the ordinary share option seems to indicate that they are hoping to sell and get something out rather than risk losing all their money.
Those who have opted for the hybrid preference shares will have to wait for the company to turn around its financial fortunes before even being considered for dividend payouts again.
Turnaround milestone
According to Manyere, Ecsponent’s debt-for-equity restructuring is a “crucial milestone” in the group’s turnaround plan.
“It significantly strengthens the company’s balance sheet, which is crucial to our efforts to extract maximum value for all our stakeholders. The restructuring matches the liquidity profile of our investments,” he said.
Questioned by Moneyweb on the debt-for-equity agreement leading to the dilution of Ecsponent’s current ordinary shareholder base, Manyere conceded that as the major shareholder his stake in the group would significantly be reduced.