adminWHEN TN Bank listed on the Zimbabwe Stock Exchange on July 11, 2012, it became the first company to list on the bourse after 2010. It also raised optimism that more listings would follow.However, on February 10 the following year, the bank delisted after being acquired by Econet Wireless Zimbabwe. It was later rebranded to Steward Bank.
A three-year listing drought subsequently followed. Since 2009, 19 companies have been delisted from the ZSE. In 2013 alone Apex Corporation, Cairns Holdings, Celsys, Chemco Holdings, Interfresh, Gulliver, Interfin, Lifestyle Holdings, Phoenix Consolidated, Steelnet and Trust Holdings left the exchange.
There were, however, some listings last year, but from companies that were unbundled from already listed parent firms. For example, Proplastics, a former subsidiary of Masimba Holdings, was listed on June 8, 2015, while Axia Corporation and Simbisa – both unbundled from Innscor Africa Holdings – debuted on the exchange on May 17, 2015 and November November 6, 2016, respectively. The Sunday Mail Business reporter Munyaradzi Mlambo recently talked to ZSE chief executive officer Mr Alban Chirume to explain the current phenomenon and its implications on the market.
Q: The country has seen 19 firms delisting from the ZSE since 2009. In your view, what could be the causes for delisting?
A: Since 2009, companies have delisted from the ZSE for various reasons which include: deliberate efforts by the ZSE to clean up the Official List by removing companies failing to meet the continuing obligations in terms of the ZSE’s Listings Requirements.
Takeovers by major shareholders through schemes of arrangements; mandatory offers and mergers; economic challenges and poor corporate governance resulting in curatorship, judicial management and liquidation; and, in a few instances, voluntary terminations.
Q: What does the delisting of companies from the ZSE mean to the country and stock market investment?
A: Delisting signifies loss of business to the various market players and a decrease in the quoted securities investors can choose from. Delisting of companies has various implications to the country and the stock market depending on how one views it. Where delisting is at the behest of the ZSE, delisting should inspire confidence to investors. ZSE believes that the value of an exchange is not in the number of listings but in the quality of those listings. ZSE is active in ensuring that only companies which meet the criteria for listing and meet the continuing obligations. Delisting also reflects that there are improvements to be made in the ZSE’s Listings Requirements to align with the current environment and provide additional warning signs to investors.
A stock exchange generally mirrors the state of the economy. Delisting is therefore an indicator of the performance of the economy if driven by company closures, liquidations and judicial management. Delisting may also be a reflection of poor corporate governance practices in companies. While these are unfortunate incidences, such situations provide lessons which can be adopted in improving securities regulations especially in the areas of fitness and probity of key personnel, related party transactions and general corporate governance.
Government’s programmes on corporate governance and the ease of doing business do address some of these challenges. Investors are buying into listed companies at relatively low amounts due to prevailing lower asset valuations of the companies in comparison with regional peers as a result of the perceived country risk, triggering takeovers through mandatory offers and schemes of arrangements.
Delisting also reflects the need for shareholder activism. Shareholders of listed companies are the owners of the company and hence have the power to direct the governance and affairs of listed company and there is need for them to be more proactive in that regard.
With the current regulatory framework in place, it is within the shareholders’ powers to collectively block a delisting. Once a company is delisted, ZSE believes that the transparency may be compromised as there is less regulation. The complaints that follow post delisting can be a reflection that shareholders need to be more active in the companies they have invested in. elisting also means that shareholders lose the protection of the ZSE once the company is no longer listed.
Some shareholders have failed to get their dues following delisting. When companies list, their borrowing costs decrease due to the transparency and onerous disclosures associated with listing. It is expected that the opposite applies with a delisting.
Q: As the ZSE boss, what are you doing to ensure that more companies list while the listed ones remain on the bourse?
A: ZSE, together with its members, actively meets with potential issuers as part of building up a pipeline of listings. Some of the listings witnessed within the last 24 months have been through such initiatives. ZSE also provides input on policy matters lobbying for favourable conditions for Issuers and prospective Issuers. For the companies that are already listed, the ZSE does engage the companies, facilitate capital raising transactions, performs visits and lobbies on their behalf on policy pronouncements.
Q: Some investors have been asking about what happens to their shares when a company delists. The questions arise because investors tend to make money out of a rise in share price movements, so what happens to their shares when a counter delists?
A: When a company is delisted, shareholders still retain their securities and all the legal rights attached to those securities; so it is not the end for small shareholders. However, delisted shares cannot be traded on the ZSE. Delisting may practically appear to be the end for small shareholders for the following reasons: delisting poses a challenge in terms of hindering the ability of shareholders to sell off their shares through the exchange. Once delisted, it is generally harder for small shareholders to find buyers for their stake. As a result, the liquidity for small shareholders is reduced further due to the lack of a public platform to sell shares.
Valuation: The exchange provides a free daily valuation platform for all shareholders in a counter through price discovery as a result of the platform’s ability to bring together willing buyers and sellers. Once a company delists, a company may elect to use other valuation mechanisms on a periodic basis for other purposes. However, a small shareholder who wishes to sell their stake and seeks to have a current value for their shareholding will find it expensive and unreasonable from a cost-benefit analysis to engage the services of a valuation expert.
Transparency: Publication of cautionary statements, changes in directorship and financial statements is not compulsory for non-listed entities. Shareholders may not know the developments within the company as a result of this.
Regulatory protection: Reduced regulatory protection as a result of the absence of the obligation to comply with the Listings Requirements; and delisting also entails reduced interaction with shareholders for corporate actions.
Q: What impact does delisting have on the confidence of existing and potential investors, especially when their shares can no longer be traded on the bourse?
A: In addition, it is the duty of the investors to take an active interest in the affairs of their investments. Investors should take an interest in late publication of financial statements, late convening of annual and extraordinary general meetings, regulatory notices, press reports, company notices and the general financial performance as these may assist in showing distress signs, regulatory compliance and intentions of major shareholders.
Q: What are the rights of minority shareholders? Do they have power to stop a counter from delisting, and if so, under what circumstances can the power be exercised?
A: There are mechanisms enshrined in the ZSE Listings Requirements (the “Rules”) to allow minorities to independently vote on a voluntary delisting application. In particular, controlling shareholders, their associates and any parties acting in concert with them, are prohibited from voting on the resolution to delist the company. A vote of 75 percent of minorities present in, or represented by proxy at, the meeting is required to approve the delisting of a company. Minorities can therefore determine whether a company delists or not where a voluntary application for delisting has been sought provided the shareholders actually do attend the shareholders’ meeting.
Q: What measures is the ZSE putting in place to protect minority shareholders in the event of a delisting?
A: The ZSE realises that it has no control once a company has delisted.
We believe that the symptoms of a potential delisting are quite apparent as discussed above and these are mainly linked to complying with the continuing obligations and publication of material information. ZSE therefore is doing the following: Revising its Listings Requirements to enhance disclosure. The Rules now await gazetting to be effective; participating in the revision of the Companies Act; and encouraging shareholder activism.
The ZSE always encourages shareholder activism as the decisions of a company are mainly shaped by the collective action of its shareholders, not necessarily by regulators at the end of the day.
Online Reporter