28 June 2012

Zimbabwe: ZB Shareholders Demand Dividend

Major shareholders in banking group, ZB Financial Holdings Limited (ZBFHL), have demanded a dividend from the financial services firm arguing that a resolution sought by directors for the company to buy its own shares indicated that it had the resources.

The demands, made by the National Social Security Auth-ority (NSSA) and government at the institution's Annual General Meeting (AGM) held last week on Friday, followed debate on a special resolution under which ZBFHL directors sought shareholders' approval for a share buyback. NSSA has a 37,93 percent shareholding in ZBFHL while government has a 23,59 percent equity.

The two major shareholders said the resolution sought by directors was testimony that the group had money to declare a dividend given that it would purchase the shares using internal resources.

ZBFHL non-executive chairperson, Bothwell Nya-jeka, responded by saying the group could not declare a dividend for 2011 because of the need to capitalise its operating units but had embarked on a dividend policy for the current reporting season.

"It was a deliberate policy not to declare a dividend as we wanted to capitalise all the group's subsidiaries," Nyajeka said.

He said in order to position the group to take full advantage of opportunities in the market, a number of strategic business units in the group required further capital injection.

"In view of this critical requirement, the board did not consider it prudent to declare a dividend in 2011," said Nyajeka.

He said as much as they would have loved to declare a dividend, they could not do so while sacrificing long-term benefits for shareholders.

The two shareholders however insisted that the group had money after posting a profit after tax of US$7 million.

"We want a nominal amount as dividend to show that you have not forgotten us and value our investment in the group. This will assure us as shareholders that you have not forgotten us," a government representative said at the AGM.

NSSA asked ZBFHL if there was any shareholder who had shown willingness to dispose of their shareholding, to which ZBFHL CEO, Elisha Mushayakarara, responded: "We are not embarking on a share buyback because there is a shareholder who has indicated that they are buying shares or we are targeting. We will buy the shares as and when they become available on the market."

"We want to avoid a situation where shares are dumped on the market, a development that can affect the group's share price."

Nyajeka said the share buyback was going to be executed over a period of one year.

NSSA and the government representative then asked ZBFHL management to make a commitment that they would "at least declare an interim dividend".

Nyajeka said he could not make that commitment but the board would take into consideration their request.

NSSA and government felt the response was "very negative" as they wanted a commitment which the management could not promise.

Mushayakarara said management was not negative but positive in their discussion and engagements with all shareholders.

"We take every shareholder seriously and all their views and comments are taken into consideration," said Musha-yakarara.

"At this stage, legally, it is not possible to declare a dividend. The board will have to approve it. Nevertheless, technically, the year 2011 is a closed chapter. We cannot declare a dividend at this meeting," said Nyajeka.

During a trading update, Mushayakarara could not give specific figures as the group is in a closed period.

In the first five and half months of the year, Mushayakarara said market fundamentals continued to deteriorate, with cash challenges worsening and some clients struggling to repay loans. There was also uncertainty with regards to the political environment.

"Deposits rose by five percent in May and we expect further growth. We opened three new branches during the period under review, 300 point of sale stations and 10 new ATMs," he said.

Mushayakarara said it was difficult for companies to make projections for the full year but expected to group's earnings to increase while its balance sheet strengthens.

The group achieved a profit outturn, with net profit having improved by 370 percent for the year ending December 31, 2011, from a loss position in 2010 to a profit of US$7 million.

The performance was despite a provision for an extraordinary expense amou-nting to US$2,6 million. This represented the final negotiated settlement of warranties and indemnities in the recapitalisation of a former subsidiary company, Inter-market Banking Corporation (Za-mbia) Limited.

The warranties and indemnities were reported as contingent liabilities at a level of US$5,1 million.

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