Published by the government of Zimbabwe
Jeffrey Gogo
9 July 2009
Harare — SOME listed companies are severely exposed to hostile take-overs particularly by foreign investors because the Zimbabwe Stock Exchange is under-valued.
Whereas with a dollar you can buy two packets of biscuits- the popular "dollar for two" biscuits, the current illiquidity in the market allows you to purchase up to 50 shares with the same dollar say in a counter like FBCH trading at around US 1,9 cents.
This is a massive bargain, which opens cheap avenues for those with capital to easily snatch shares big time and aggressively so with little resistance from domestic investors.
In total ZSE market capitalisation is estimated at around US$3,5 billion, only having moved marginally from its February 19 re-opening levels.
The revaluing of the stock market earlier this year from Zimbabwe dollars to US dollars left vast skewdness in share prices.
Now even the institutional investors such as pension funds, which traditionally have been the biggest drivers of the stock market, are finding it difficult to move big value shares.
It is generally accepted that stock market performance mirrors attended economic value at that particular time. And for the ZSE, which caters for all the real sectors of the economy -- agriculture, mining, tourism and financial industry, plus the service sector -- it can be deduced that the Zimbabwean economy is currently worth US$3,5 billion or a little more because of earnings from other unlisted entities.
In such a scenario, it is very easy for wealthy foreign investors to acquire significant equity in all listed companies even in the presence of strict laws limiting foreign exposure on the local bourse.
A single foreign investor can buy a maximum 25 percent in a ZSE company while combined investors can go up to a maximum 40 percent according to RBZ regulations.
But it is easy for aggressive foreign investors to circumvent these laws -- if they intend to gain a controlling stake in a locally listed company. One can buy as an individual on one hand and with the same hand use an investment vehicle to buy in the same company while on the other hand he can collude with a local investor to buy shares on the open market.
Because hostile take-overs are supposed to be what they are -- hostile -- this will allow the assumed three "different" buyers to gain majority shareholding central to pushing major decisions/ votes in the company.
For example Nick Van Hoogstraten, a shrewd and schemy British businessman has key shareholding in about 33 of the ZSE companies whose ownership are held under various names including nominee companies and his major investment vehicle Messina Investments.
Some of his interests are manifest in Hwange Colliery Company, Tedco Limited, NMB Bank and RTG to mention but a few.
He has tried to gain controlling stakes in RTG and NMB but fortunately or unfortunately was blocked.
The liquidity problems in the market are well elaborated, and these have been commonly accepted as the main cause for the slowdown in shares, even when many believe the ZSE is appreciating.
Finance Minister Tendai Biti said earlier this year there was an estimated US$40 million in circulation since the US dollar was accepted as Zimbabwe's own adopted currency.
In April, he estimated the US dollar circulation had risen to almost US$500 million and believes it will increase to US$1 billion by year end.
The major limitation is that the minister's belief is not premised on export earnings but more mildly on donations from other countries, which are otherwise viewed as foreign direct investment.
Ideally Zimbabwe must have consulted and agreed with US Federal Reserve before dollarisation.
This would have allowed the two central banks to carry out a pragmatic analysis of the Zimbabwe economy and how much it would have required for circulation according to output.
The Federal Reserve would have then printed out cash for issuance to the Zimbabwe economy including smaller denominations, which would have helped ease the change problem and increase cash in circulation.
But with the current liquidity stress what then this means is that for local investors, more money will be directed towards consumption and very little will be saved for other investments such as the share market.
Analysts said as long as liquidity remained tight for domestic people, the situation opened up cheap investment opportunities for foreign investors.
"The market is cheap, very cheap" said Mr Robert Chihota, a Harare based stock market analyst.
"Those investors running away from the global financial crisis could aggressively find refuge in ZSE which has remained at a discount against major world markets."
The Herald Business is reliably informed that some stockbrokers have already met with some foreign fund managers about who are targeting numerous ZSE companies.
It is also believed that billionaire world investor George Soros has bought about 400 000 ABC shares and close to 2 million Econet shares in deals brokered by ABC Stockbrokers and Lytton Edwards Securities respectively.
Already it has been noted that some companies on the market are in dire need of extra working capital.
Recently ZB Financial Holdings announced it was planning a private placement to help recapitalise the group in face of the tight minimum capital requirements for the financial sector.
The market believes ZB intends to raise no less than US$30 million in this project.
Also giant beverage maker, Delta Beverages Limited sold off about 23 million shares to SUBMiller of South Africa in a private placement earlier this year.
The equity sold at a premium helped the group increase its working capital.
Delta announced last week that it had acquired a new plant from overseas able to pump 42 000 pints per hour and half that figure for quarts.
The same plant is able to produce about 30 000 units of canned beer per hour.
In the outlook however, Mr Chihota remained upbeat about the performance of the stock market.
He said: "We forecast that share prices will gradually gain value when more investors start coming into the market especially when cash in circulation rises.
"The hope for new FDIs will eventually improve liquidity some of which will be directed towards equity investments."
The stockmarket has registered a growth of 120 percent since February 19.
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