Firms struggle to find capital

What is evident from the annual meetings is that companies are struggling to find capital to optimise operations with a couple of companies proposing share buy- backs.
CAPS Holdings was also on the market, seeking shareholder approval to delist from the Zimbabwe Stock Exchange citing loss of value and poor performance by the company.
However, according to the directors, the delisting is expected to ignite the value of the pharmaceutical company that is hoping to bring in fresh capital and probably relist.
If the reasons provided by CAPS are anything to go by it means that the market should see more companies de-listing and then relisting as a way of rebuilding value outside the exchange.
More than half of the companies listed on the local bourse have lost value since the introduction of the multiple-currency system in 2009, with some companies recording a market capitalisation of less than US$1 million.
RioZim had its annual general meeting and the mining giant said it was pursuing its proposed US$40 million rights issue.
Chairman Mr Tichaendepi Masaya said they would also be looking at short-term options of restructuring the company’s debt obligations.
Shareholders of the diversified resource firm approved the rights offer early last year but RioZim faced hurdles in securing an underwriter.
Essar, which recently bought a controlling stake in Ziscosteel, was also interested in RioZim but pulled out as the deal would have violated the country’s empowerment laws.
Pioneer Corporation Africa issued a cautionary statement saying they are engaged in negotiations that would result in the acquisition of a business unit.
However, from the look of things, given the fact that companies are not considering equity, rights offers and share placements to raise finding, share buy-backs would be upheld by many companies.
A wave of share buy-backs is expected to rule the cash-starved stock exchange as companies seek to re-correct undervalued stocks and raise capital.
Fidelity Life Assurance directors said they intend to buy back the shares at a price lower than the nominal value price per share and not greater than 5 percent of the weighted average of the market value.
Most corporates want to mop up liquidity in their stocks to boost prices and stimulate demand for the shares.
A share buy-back is the process by which a company reduces its capital by offering to purchase shares back from its minority shareholders.
Share buy-back is one of the methods which is being adopted by local companies in the quest to raise capital for re-establishing their businesses.
Analysts said companies could use this initiative, as a preliminary to rights issues as stock prices would have appreciated.
Firms embark on share buy-backs to boost their share prices so that when they embark on rights offers, it would be at a good price and would also achieve a low cost of equity.
ZSE listing requirements allow a company to purchase up to 20 percent of its issued share capital in one financial year.
The Companies Act stipulates that a company’s acquisition of ordinary shares in the aggregate year may not exceed 10 percent of the company’s issued share capital from the day of grant of this authority.
A share buy-back is usually considered a sign that the company’s management is optimistic about the future and believes that the current share price is undervalued.
Reasons for buy-backs include putting unused cash to use, raising earnings per share, increasing internal control of the company, and obtaining stock for employee stock option plans or pension plans.
It can also be used as a substitute to dividends.
However, analysts added that there are very few companies that implement the exercise as they only make that request to shareholders as a standing order.
Most recent rights offers flopped as share prices were undervalued and shareholders were illiquid.
In recent years, directors of companies were not utilising this initiative but given serious shortages of cash and high costs of borrowing this may be the only option left.