Zimbabwe: Minority Shareholders Need a Voice

The newest counter on the Zimbabwe Stock Exchange (ZSE), TN Bank, recently issued a notice to shareholders proposing to delist the counter, just six months after listing.

Reasons advanced for delisting the counter include the illiquid nature of the stock that has seen the counter trading on only 33 out of the 108 available days. The company states the illiquid nature of the counter has seen the share price plummeting by 50% from its listing price of 32,08 US cents and is now trading even below its net asset value (NAV) of 25 US cents.

Hence to facilitate the delisting, the board is seeking shareholder approval to undertake a share buyback to a maximum of 20% of the company's issued share capital.

The buyback will be done at a price not more or less than 5% of the weighted average trading price for the five days preceding the repurchase. After the company delists, shareholders will continue trading the shares over the counter on a willing buyer, willing seller basis.

It is the rationale for delisting the bank that is not convincing. To begin with, the company reckons the counter has weakened because of its illiquid nature, which does not hold water. If anything, the counter should firm as investors with appetite for the stock are forced to bid higher prices. Examples from our local bourse are many and some of them include Radar, Border, Cafca and BAT.

Also, basing on a listing price of 32,08 US cents as a way of assessing the performance of the share price is wrong as Econet could have overpaid for their investment in the bank. The slump in price might also be an indication that investors did not have faith in the future financial prospects of the company.

Moreover a quick look at the price-to-book values (PBV) ratios of most listed banks indicates that most counters are trading at a discount to their NAVs. NMB is trading at 0,70x; FBCH is at 0,52x and that of CBZH is at 0,51x. Hence there is nothing unique in TN Bank's pricing.

The whole transaction appears to be in the interest of the main shareholder as minorities stand to lose the most. TN Bank is proposing to carry out the share buyback at a price not less or more than 5% of the weighted average of the market value for the securities.

Failure to sell their shares means minorities will hold their shares as unlisted securities which implies they will not have the protection of the regulators. So in a way minorities are being forced to sell their shares now at a price which the board admitted was undervaluing the company.

If the company wanted to give minorities a good deal, then the price of 32,08 US cents at which Econet injected the US$20 million into TN Bank should have been used as the floor.

It is also unfortunate that minority shareholders cannot block the transaction as Econet already has sufficient votes to make the resolution sail through. Approximately 83% of the issued share capital of TN Bank is held by Econet and other various trust vehicles.

Although not proven, it is widely believed the underlying beneficiary of the trusts falls within the Econet camp. If this is true, there is a good chance that between them and Econet they will vote and railroad the resolutions through at the expense of other minorities.

In such instances, the Securities Exchange Commission (Sec) should intervene to protect the minorities. In this case, maybe Sec should ask Econet to recuse itself since it stands to benefit the most.

What is also of concern is the circular did not mention it was Econet's intention to delist the bank as revealed at the press briefing held on December 12, 2012.

Furthermore, there was also no mention in the circular that former chairperson of Econet and CEO of TN Holdings, Tawanda Nyambirai, had already made a separate deal in which he exchanged his shareholding in TN Bank for shares of equal value in Econet.

The strong involvement of Econet evokes memories of similar transactions in which minority shareholders have been short-changed. An example being the widely disputed transaction in 2009 in which Econet Wireless Global supplied Econet Wireless Zimbabwe with network expansion equipment valued at US$93,90 million.

Corporate governance issues involving Econet probably explain why its share price remains depressed regardless of the undemanding valuation metrics that it is currently trading at. The telecoms company presently has a historical PE of 4,38x far below comparable peers in the region.

Safaricom of Kenya is trading at 12,2x while that of MTN in South Africa currently stands at 15,31x. Since dollarisation, the company has invested US$677 million in network expansion yet its market capitalisation stands at US$434,5 million.

Investors ideally opt for companies whose operations are transparent. This therefore pushes away foreign money from coming into the country as the big caps are usually the most preferred.

While every shareholder should represent their own interest and vote to the extent of their shareholding, the challenge with Econet is that they are on both sides of the river in what can be considered to be a conflict of interest.

It must be remembered at all times that once a company is listed, any decisions should be for the benefit of all shareholders. Once one shareholder is able to make unilateral decisions, then the company should be delisted and run as a private company.

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