Zimbabwean businessman George Manyere, the current boss and majority shareholder of struggling JSE-listed financial services and private equity group Ecsponent Limited, is set to pump R200 million into the financially strapped firm as part of a debt-for-equity deal that will reduce Ecsponent’s balance sheet debt by around 30%.
This was confirmed in a JSE Sens announcement by the Pretoria-based group on Monday. It comes just over a week after Ecsponent confirmed that it will default on around R188.3 million in payment obligations that have become due largely to its preference shareholders in March.
In his first media interview since the announcement of the default, Manyere, who is acting CEO and executive vice chair of Ecsponent, told Moneyweb: “Despite the default to preference shareholders, Ecsponent is still a going concern … We are committed to turning the group around, which can be seen by my decision to invest R200 million in the company.”
Manyere, a key player in the Ecsponent group after securing a major share in late 2017, founded the private equity firm Brainworks Capital – the first Zimbabwean company with a primary listing on the JSE main board – in 2008. He left Brainworks in February 2017 and disposed of his stake in the company in December 2017 to pursue other opportunities, including his investment in Ecsponent.
The George Manyere Children’s Trust is currently the largest shareholder in Ecsponent Limited, holding a 57% direct and indirect interest in the company’s issued share capital. This is held through MHMK Group – the investment arm of his family trust. With MHMK’s proposed R200 million recapitalisation of Ecsponent, this will take its shareholding in the group to around two thirds.
Manyere reiterated the contents of Ecsponent’s Sens statement on Monday, saying that the group’s assets, including a majority stake in Frankfurt Stock Exchange-listed financial services group MyBucks, has underlying value and growth potential in the medium to long term.
“Ecsponent’s biggest risk through its credit portfolio was its significant direct and indirect exposure to MyBucks. This exposure effectively tied Ecsponent’s performance or failure to that of MyBucks,” he said.
“MyBucks was run and operated in the past as a fintech business and as we have seen globally, most tech companies have been losing money and they are constantly supported by cash from their shareholders since most of them have continually operated at a loss. This was the case with MyBucks, and Ecsponent was the biggest lender to MyBucks through its facilities to MyBucks’s lending subsidiaries in South Africa and Eswatini.”
He added that the latter were funded from preference share proceeds, “however, none of the operations outside of South Africa and Swaziland in the MyBucks Group were funded from Ecsponent Limited preference share proceeds”.
He said MyBucks operations in countries such as Botswana, Zambia, Malawi, Mozambique, Uganda and Zimbabwe were “self-financing profitable and regulated businesses”. In all these countries, except for Botswana, the MyBucks operations were either licenced commercial banks or deposit-taking microfinance banks
“Under MyBucks’s previous fintech model, the business made cumulative losses of approximately €32 million [R600 million] between June 30 2017 and June 30 2019. This was despite its banking subsidiaries having made a cumulative profit of approximately €20 million [R350 million] for the same period,” he said.
Manyere said the “loss leader” during this period was tech costs and huge head office costs, with a cumulative cost of approximately €52 million [R908 million] that was being funded by expensive debt.
“Due to the unsuccessful business model that MyBucks was operating under and its mounting losses, Ecsponent was unable to recover its direct and indirect exposures to MyBucks and this led to the settlement of the loans in its credit portfolio with MyBucks shares,” he explained.
Manyere said the MyBucks workforce has been cut by more than 100 staff since Ecsponent effectively took over the Luxembourg-based group.
MyBucks was founded by infamous former Blue Financial Services boss Dave van Niekerk, who is however no longer involved with the group. Ecsponent’s former long-time CEO Terence Gregory resigned from the group in August last year.
According to Manyere, a key part of Ecsponent’s turnaround plan is the re-evaluation of its capital structure, considering the changes in its portfolio mix. “For this reason, the preference share programme has been halted and alternatives to the capital redemption and dividend obligations are being proposed.”
He said while the company was forced to declare a default of around R188.3 million to certain preference shareholders, it still had until early June to try to rectify the situation as well as the situation around dividends due to preference shareholders.
In its Sens statement on Monday, Ecsponent announced further details on the options relating to the capital restructure of its preference share programme in order to avoid the compulsory conversion of preference shares to ordinary shares.
Speaking to Moneyweb, Manyere said he did not believe Ecsponent’s preference shareholders, who hold some R2 billon worth of preference shares, would lose their money.
“We are committed to seeing Ecsponent settle its obligations towards preference shareholders as and when the company realises value from its underlying investments, and we believe this is possible in the medium to long term,” he said.
“Our objective is to avoid having to convert the preference shares to ordinary shares. These alternative options will protect preference shareholders’ rights to preferential capital redemptions,” he added.
Listen to Moneyweb editor Ryk van Niekerk’s interview with George Manyere: