28 November 2012

Zambia: Factors Needed to Strengthen LuSE

THERE is need to address the growing concerns that most stakeholders have expressed regarding the performanance of the Lusaka Stock Exchange (LuSE).

LuSE was created in 1993 and it became operational in 1994 as an exit vehicle for privatisation of State-owned companies.

The stakeholders are calling for serious reforms so that LuSE performs as other stock exchanges are doing in other countries.

Dot com Zambia chief executive officer Canbel Mawana says LuSE should be reformed so that it is easier for business houses who want to liquidate shares.

Mr Mawana says selling shares is one way of raising capital for small and medium scale enterprises (SMEs) the world over but that it is not the case in Zambia.

He says shareholders could approach LuSE with a view to dispose of some shares in order to finance other business ventures but that one is told to wait until the shares are sold, a process which he observes takes long.

"The SMEs get discouraged to buy securities because they are not easily sold out when one wants to sell when an emergency occurs," Mr Mawana says.

He adds that the multi-nationals have dominated the stock market in the country, a situation he says needs to be changed.

Dialogue between the private sector and Government should be encouraged so that many players participate in buying shares through providing an enabling environment.

"There is need to encourage companies in the country to participate on stock markets," Mr Mawana says.

LuSE has performed badly this year with 50 per cent of the total market recording negative gains from January to November 2012.

Stockbroker Zambia financial analyst, Change Besa said LuSE had 22 listed stocks as at November this year and that the performance shows that 11 stocks of the market had recorded negative gains from January to November 2012.

"The LuSE All Share Index is down 12 per cent in local currency terms and 20 per cent in United States (US) dollar terms.

"Among the notable price movements are -30 per cent drop in the share price of Celtel Zambia, -12 per cent Investrust Bank, -31 Standard Chartered Bank Zambia, -25 per cent ZAMEF," she said.

Ms Besa said the other useful indicator of stock market performance is the Price to Book Value ratio (PBV) and noted that a number of firms were trading at a share price which was 25 per cent below its book value.

"The general rule of thumb, all else in place and assuming good management is that a PBV of one or less suggests that the stock is grossly undervalued - and therefore a bargain buy or investment," Ms Besa said.

LuSE's poor performance is, however, in sharp contrast with the overall splendid performance of the Zambian economy currently running at just over seven per cent Gross Domestic Product (GDP) growth rate.

"It is also worth noting that the recent GRZ debut Eurobond issue was hugely successful and completely oversubscribed at US$11 billion against a take up of US$750 million. In short there is money out there looking to come into Zambia. So why is it not using the LuSE as alternative entry conduit?" she asked.

But LuSE chief executive officer Beatrice Nkanza said that the stock exchange was not performing well due to the number of the listed companies on LuSE.

She said in other countries the stock markets had a lot of companies listed which help them to have high share liquidity.

"The larger the number of business players trading on LuSE the more liquidity you have, but we have a situation where we have few companies listed on the stock market and to make matters worse some companies have as low as 15 per cent shares floated on LuSE," Ms Nkanza said.

She said most of the mining companies were not listed on LuSE apart from First Quantum Minerals, which she said had listed on the third listing basis.

Ms Nkanza said LuSE would like most of the mining companies to list on the stock market.

She appealed to boards of most of the companies to be supportive by making decisions like increasing the shares floated on LuSE with minimum basic requirements that companies were supposed to list for not less than 25 per cent.

"This is the only way shareholders will be assured of high liquidity and not reforms. The Government should lead the way in listing State-owned companies so that many other companies are attracted also to list," she added.

Ms Nkanza said pensions and insurance companies had a bigger role to play by offloading more than 25 per cent shares on LuSE, which she noted was not the case.

She added that LuSE had projected to list more than 50 companies on the stock market by the year 2030 by capturing mostly the parastatal and telecommunications industry.

This is expected to increase the flow of trading on LuSE, thereby enhance the share liquidity which has been a challenge over the years.

Ms Nkanza disclosed that LuSE had put in place various measures aimed at attracting many business players to participate on the stock market.

She added that LuSE was encouraging parastatal companies to start issuing bonds on LuSE so that local companies participate unlike the situation where most of them opted for the international markets.

Ms Nkanza said the local stock market had the potential to raise funds in local currency, adding that parastatal firms could raise a lot of money to finance huge projects through bond issuance on LuSE.

She hoped that with the coming of the GRZ Eurobond in the country, things could change for the better with LuSE, saying this might attract a lot of liquidity on the LuSE market.

Pronouncements by Government officials should be encouraged so that local and foreign investors start floating more shares on LuSE.

Minister of Finance Alexander Chikwanda said companies should consider offloading shares on LuSE.

Mr Chikwanda said the global community had confidence in the credibility of Zambia as a profitable investment destination, hence the need for companies - both foreign and local - to list on LuSE.

"We urge all mining houses, banks and information technology companies to list on the Lusaka Stock Exchange not only to widen Zambian participation in the economy but also tap the hidden and latent capital," Mr Chikwanda said.

He said the Patriotic Front Government's style was to see companies list on their own volition, as an imperative of corporate social responsibility.

There is also need for Zambians to improve on the culture of saving on the long-term basis if LuSE is to perform well.

There is a culture of saving on the short-term basis which could be the reason for most companies not listing on the stock market.

Another issue which is hampering most SMEs from listing is the low capital base which, even if they listed, they could not have sufficient funds to pay to shareholders in form of dividends.

There is need to also address the issue of ownership structure of most companies, to look at who are the board of directors, because these are the issues which attract investments into these companies.

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