Having lost out on their high-yielding dividends, many of Ecsponent Limited’s 2 800 preference shareholders are now worried they may lose the more than R2.1 billion that they’ve invested in the small-cap private equity and financial services group.
Pretoria-based Ecsponent hit financial trouble last year and announced in February (2020) that it will default on paying out around R188 million in dividends, due in March to preference shareholders. The scale of its financial woes was revealed last month, when it reported a R1.98 billion loss for its half-year to December 31, 2019.
Adding to Ecsponent’s woes, Moneyweb also reported last month that its subsidiary, Ecsponent Financial Services, is facing a Financial Sector Conduct Authority (FSCA) inquiry. The subsidiary stands accused of marketing “high risk” preference shares in its holding company to unsuspecting pensioners.
Moneyweb has been contacted by several concerned preference shareholders, most of whom are pensioners, since first reporting on Ecsponent’s default in February. In recent weeks, Moneyweb has received more correspondence, via email and even via social channels, from worried shareholders who seem to have realised that they may lose out not just on dividends, but potentially the initial capital invested in Ecsponent.
Many have been wary to comment on the record, but now for the first time two have decided to tell their story.
This comes as they, together with the other preference shareholders, have a tough decision to make on Wednesday, May 27, on whether to vote in favour of amending their shares into “hybrid preference shares” or allowing a default conversion of their preference shares into ordinary shares in the group.
Andries Roets, a Nelspruit pensioner who turns 75 later this year, tells Moneyweb he is “angry and worried” not only about not getting the preference share payouts he is dependent on, but the prospect of losing a significant portion of his life savings.
“I have worked for 60 years and don’t need this stress, especially now, being a pensioner and reliant on the payouts from my Ecsponent investment,” says Roets.
“I have not received payouts since March, and it has affected me badly. I can’t even afford to pay levies on my house and for my medical aid now.”
Roets made the investment through Ecsponent Financial Services after hearing about it on a local radio station.
“I hope something can be done, but I am very worried that I will end up with nothing,” he says.
“Speaking to other preference shareholders [following an Ecsponent webcast meeting this week], many of us share similar concerns.
“Personally, I don’t have the means now to get a lawyer to look into this and I don’t know what to do.”
Between Thursday last week and Tuesday this week, Ecsponent has held nine webcast meetings with preference shareholders explaining the hybrid preference share option. This it says is being offered to affected preference shareholders as an alternative to their shares automatically being converted to ordinary shares.
The conversion to ordinary shares, in the event of a default, is in line with the group’s current Memorandum of Incorporation (MoI).
Roets was one of around 2 000 preference shareholders who participated in one of the webcasts, but he is sceptical and has not decided how to vote. This comes as the value of the group’s ordinary shares have plummeted 70% on the JSE over the last year and currently trades at a nominal 6 cents a share.
At a loss …
Kobie van der Walt, a resident of Zeerust in the North West, is another Ecsponent preference shareholder who has expressed anxiety to Moneyweb about the group’s financial situation.
He is also in his 70s and says “a substantial amount” of his retirement savings has been invested in Ecsponent’s preference share scheme.
“I took part in the webcast, but really don’t know what I am going to do,” he says.
“I have not received any dividends since February, so this whole situation has severely affected me financially and emotionally,” says Van der Walt.
“My investments into the company were made specifically to benefit from the monthly income.”
Van der Walt invested through a financial intermediary and not via the Ecsponent Financial Services subsidiary. However, he says he was never told about how risky the investment could be.
“The Ecsponent portfolio was marketed to me, and as far as I understand, to many other pensioners, as a safe and stable investment,” he adds. “Many of us have invested our life savings into this. It was never communicated to me that Ecsponent was operating a very risky business model, investing in start-up companies.”
Subsequent to the webcast, Van der Walt says “things don’t look good”.
He points out that both the hybrid share option and ordinary share conversion option will still mean that current preference shareholders are unlikely to receive dividend payments over the next few years.
“From what I understand, as per the [proposed] MoI amendment document, should investors vote for hybrid shares, one has to forfeit a monthly income for four years or more.
“In addition, it is only at the discretion of the board to pay dividends, and this will be in the form of equity,” he notes.
“The options offered still put us pensioners in a very tight spot.”
Other nervous preference shareholders, who have reached out to Moneyweb to convey their situation on condition of anonymity, talk of investing between R1 million and up to R7 million in Ecsponent.
“We desperately need help,” reads a message sent to Moneyweb via Facebook.
“We invested R4.3 million with them and our advisors knew that was the only money we had.”
“We both (are) not working and have no other income, (which was) known by our advisor… We are now told that he is also without a job,” says the individual.
“Every time we ask where’s our money, we get told it’s there. (But) we are also told that we cannot get it. I’m so desperately in need of help as that is all our money. Waar toe van hier? [Where to from here?]… We are now asked to lock-on and vote, (but) we don’t understand what to vote for,” the shareholder adds.
CEO believes turnaround is possible
Meanwhile, speaking to Moneyweb on Tuesday, Ecsponent Limited CEO George Manyere reiterated that he believes the group is solvent and can turn things around.
He blamed the group’s financial woes on its former management, but said progress has been made in the restructuring the company as well as its problematic MyBucks business. Both companies have slashed around 100 staff as part of the restructuring under the new management team.
Manyere said the hybrid share offer to Ecsponent’s preference shareholders is aimed at giving them a better alternative, as opposed to automatic conversion to ordinary shares, which is stipulated in the group’s current MoI in the event of a default.
He said more than 2 000 preference shareholders participated in Ecsponent’s webcasts over the last week, which were aimed at updating them about the hybrid share offer.
A majority of Ecsponent’s preference shareholders will have to vote in favour of the hybrid offer for it to be passed.