13 April 2017

Zimbabwe: De-Listings Threaten Domestic Bourse

THE Zimbabwe Stock Exchange (ZSE) could experience a series of de-listings this year due to a worsening operating environment in the country which has undermined sentiment and pummelled stock prices.

But analysts warned this portended disaster for the country, as a stock market was a critical investment avenue for the broader population as it provided a common place for stock trading.

Moreover, the stock exchange made stocks liquid assets, making them an alternative to property or real estate investments as shareholders could easily sell their shares anytime to raise cash and at a profit.

A number of listed firms de-listed since the economy dollarised in 2009. Many of them had been affected by the new economic regime which hamstrung capitalisation initiatives due to a liquidity crunch in the economy. Others collapsed under the weight of heavy debts and poor management, while many others failed to comply with listing rules.

Five companies, which include short-term insurer, NicozDiamond, Barclays Bank, mobile telecommunication company Econet Wireless Zimbabwe, conglomerate CFI Holdings and hospitality group Meikles Limited are on the verge of delisting.

The National Social Security Authority (NSSA) recently said it was proceeding with plans to buy out minorities in NicozDiamond, in which it last year increased its shareholding by 10 percent to 44,9 percent.

According to ZSE listing rules, an investor who acquires a shareholding exceeding 35 percent in a company should make a mandatory offer to minority shareholders.

"Section 9 (Note 1A) of the ZSE listing rules triggers certain obligations by any acquirer who reaches a threshold of 35 percent. Accordingly, the company has begun instituting measures to ensure compliance with the ZSE listing rules," NicozDiamond said in a statement soon after NSSA's acquisition of more shares.

If NSSA is successful in its plan, NicozDiamond would delist from the ZSE.

CFI Holdings could follow a similar route after NSSA sold its entire 12,93 percent stake in the company to ZimRe Holdings.

ZimRe's CFI shareholding increased to 41 percent after the acquisition and the company announced plans to buyout CFI shareholders and delist it from the bourse.

Econet Wireless Zimbabwe's major shareholder, Econet Wireless Global, which has a 35 percent stake in the company, underwrote a US$130 million rights issue that was undersubscribed by over 75 percent, mirroring the depth of the country's liquidity crunch.

The underwriter is expected to pump in US$100 million, raising the threshold of Econet Wireless Global's shares to a level that would compel it to buyout minorities and de-list from the local bourse. Raising more capital through rights issues has proved to be an impossible task in the current environment. Even foreign shareholders are sceptical about recapitalising their Zimbabwean operations because of the huge country risk.

Meikles Limited says it has started the process of delisting from the local bourse.

Meikles' company secretary, Thabani Mpofu, last month issued a statement indicating that the company was "engaged in discussions on a transaction that may have material impact on the value of the company's shares".

He disclosed that the transaction related to a "possible offer to minorities" that could precipitate delisting from the ZSE.

Barclays PLC (BB PLC) is in exclusive talks to sell its stake in its Zimbabwe unit to Malawi-based First Merchant Bank (FMB) as the British bank continues its exit from Africa.

In a statement, FMB said it was in talks to buy out the 68 percent of Barclays Bank of Zimbabwe (BBZ).

"Discussions with BB PLC are ongoing and may or may not result in the announcement of a transaction involving the acquisition by FMB of the interest of BB PLC in BBZ. Such transaction would also be subject to obtaining approval of the banking regulators in Malawi and Zimbabwe," it said.

The banking group is listed on the Malawi Stock Exchange. If the transaction materialises, Barclays may delist from the ZSE.

Economic analyst, Evonia Muzondo, said apart from the unstable economic environment that was making it difficult for companies to raise money, organisations could be running away from regulatory obligations and reporting standards.

"There is increased accountability to shareholders which can sometimes be stressful. There is a possibility that these circumstances might force some companies to de-list. If a company cannot raise capital which, besides the publicity, is the main reason it listed in the first place, then why go through all the hassles of pleasing a wide range of shareholders and regulators in a challenging and difficult operating environment?" said Muzondo.

"With the economy opening up, listed companies are now under increasing pressure to deliver, with some who were used to less or no shareholder aggression not taking it lightly," she said.

Nearly 20 companies have delisted from the ZSE since the economy was dollarised in February 2009 due to liquidity challenges that resulted in companies failing to raise money on the local bourse or attracting new investors to inject fresh cash.

Some of the companies that are no longer listed on the domestic bourse either shut down or voluntarily delisted .

These include Apex Corporation, Astra Industries, Cairns Holdings, CAPS Holdings, PG Industries, Celsys, Chemco Holdings, Interfresh, Gulliver, Interfin, Lifestyle Holdings, Phoenix Consolidated, TA Holdings, Steelnet, Radar and financial services firm, Trust Holdings, which lost its banking unit.

Economist, Brains Muchemwa, said most companies were delisting in order to restructure their debts.

"Companies are restructuring because of debts they have to reshape their business models to try and overcome the prevailing economic challenges," he said.

"Some are doing so to grab emerging opportunities. It is easy to raise more money when not listed because a company would not be subject to regulations that are associated with listed companies," Muchemwa said.

Investors in a listed company can be classified into three groups. The first group comprises the major shareholders who are promoters of the business. The second class citizens of the corporate world would be those in the fiduciary capacity like pension funds and asset management companies and then individuals. The interests and expectations of each of the three classes are different.

The pending de-listings could rattle investors by raising worries of the same ordeal befalling other listed counters.

Analysts said many listed companies were weighing the costs and benefits of maintaining a listing because of valuation concerns. This arises when the need to mobilise resources occurs.

The current capitalisation figures on the ZSE are undervalued and based on that companies are not raising meaningful funds. If one looks at the contextual framework of the stock market, the main benefit of being listed is to raise capital.

If a company raises capital when the shares are depressed they will not obtain much value.

The tight liquidity situation has also affected the level of activity on the local bourse with most foreign investors accounting for the majority of activity, meaning the bargaining power for sellers is weakened.

A listing enables a company to raise capital through Initial Public Offerings and raise more capital through rights issues.

Listing also allows the company's securities to be valued by the market and hence can be used as cash in buying other businesses. In the case of a private company or traditional family owned business, it allows them to sell a portion of their business to other interested investors.

The delistings could result in corporate governance shortcoming as the companies will cease to be under regulatory spotlight.

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