Ecsponent may default on its obligations
Investment firm may default on its obligations, which could affect preference shares to the value of R2.1bn
Ecsponent, the investment company that funds its growth ambitions by issuing tranches of high-yielding preference shares to mainly retail investors, has come horribly unstuck.
This week it warned of defaulting on both its dividend and redemption duties.
The group last year acquired control of Frankfurt-listed lending business MyBucks, which was founded by Blue Financial Services prime mover Dave van Niekerk.
Ecsponent says it will "not be in a position to settle its obligations as they become due, in particular in relation to the redemption of the preference share obligations due in March 2020 and its ongoing dividend payment obligations on its various classes of preference shares". The ominous admission comes scarcely a week after Ecsponent issued a new tranche of preference shares worth R16m. The coupon rate on the issue was set at 12.5% — but early issues carried coupon rates as high as 13.25%.
The FM estimates the collective value of the various preference shares issued since 2014 tops R2.1bn.
Ecsponent argues that the change of its business model to a private equity investment company means that the issue of preference shares or notes is no longer an appropriate form of funding, and that alternative forms of funding will be investigated.
It seems Ecsponent is looking at a capital restructure of its preference shares — which most likely will entail proposals to convert preference shares to ordinary shares in the event of the group defaulting on its preference share obligations.
Ecsponent says it is also considering the disposal of certain noncore assets to de-gear the balance sheet.
But preference shareholders — who have enjoyed above-average yields over the years — will take huge fright at the admission that Ecsponent expects to not be in a position to settle its obligations as they become due.
A more specific worry is that it admits it could battle to handle the redemption of the preference share obligations due in March 2020.
It discloses that pending redemption amounts for payment in March involve three tranches, worth about R25m, R46m and R118m. Refinancing options, the group says, have been "exhausted".
At the time of writing, Ecsponent carried a market capitalisation of less than R90m, with the group’s main investments lying in MyBucks SA, Invest Solar Africa, GetBucks Microfinance Bank Zimbabwe, Ngwedi Investment Managers, MHMK Capital Botswana, MHMK Capital Eswatini and Chrome Valley Mining.
Ecsponent maintains the portfolio holds significant underlying value, which will need the next three to five years to materialise fully.
However, three to five years is not a timeframe that will appeal to potentially out-of-pocket preference shareholders.