ZSE falls out of favour

Linda Tsarwe
Of late, there have been proposals from a number of companies that are opting to delist from the Zimbabwe Stock Exchange (ZSE). Currently, the ZSE has a total of 61 listed counters, including suspended counters, from a total of 65 as at September 2013 and 64 counters at beginning of the year 2014. The number of listed counters came down from September 2013 following the delisting of Trust, Interfin, Chemco and Interfresh.

Trust and Interfin were part of the bandwagon of troubled banks, while the other companies were under-performing, and therefore delisting of these four was highly inevitable.
However, what is currently a point of concern is that even the companies that are relatively worthy of listing are choosing to turn private.

Could this be a possible indication that these companies are not deriving any value from being listed on the local exchange?
Broadly, the whole point of listing a company, hence making it a public company, is to be able to raise capital from the public, either local or foreign.
In exchange, public companies are obligated to disclose as much information as possible about the company, be it performance, corporate governance and any other material information pertaining to the operations of the company, enabling the investing public to make an investment decision.

Usually, a private company goes public through what is known as an Initial Public Offering (IPO), where the company will be making a maiden offer of equity in the company to the public through an organised exchange.

The benefit of investing in a listed company for public investors is that they can trade their shares relatively easily as there is a market which is more liquid, valuations are market driven and information is more efficient as compared to a private equity market for, example.

However, in Zimbabwe there have not been any IPOs for as long as one can remember. Most private companies are either choosing to remain private while, some of the already listed companies are opting to delist.

Most recently, Atlas Mara, the new major shareholder for ABC Holdings, made a mandatory offer to acquire the stake of minorities who collectively own about 4,2 percent of ABC Holdings.

Upon successful completion of the transaction, ABCH will delist from the ZSE. Atlas Mara completed the acquisition of the other 95,8 percent stake in ABCH in August this year.
Following the acquisition of a controlling stake in the banking group, Atlas Mara has highlighted that there are plans to inject US$100 million each into Botswana, and Zimbabwe operations in due course.

This will be a shot in the arm for these banks which will have greater underwriting capacity to generate more income.
Furthermore, because of its capitalisation level, BancABC Zimbabwe will therefore qualify as a Tier 1 bank as they will have met the capitalisation threshold stipulated in the Monetary Policy Statement presented by the governor of the RBZ in August this year.

Another possible delisting case is that of TA Holdings. The group’s major shareholder, Masawara, advised the minority shareholders in July of this year that it was offering to buy out shares for the stake they did not own in TA.

Upon the successful completion of the transaction, the group would delist from the exchange and pursue their business as a private company.
Although there are unresolved negotiations in completing this transaction, the plan to delist is still being pursued and upon resolution of the sticky issues with some minorities, the public market would most likely be bidding farewell to TA.

In its circular to shareholders, Masawara indicated that one of the main reasons for opting to go private is to recapitalise the business; an exercise they mentioned is better carried out when the group is private.

From the transactions of ABC Holdings and TA, the delistings somewhat give a possible indication that the ZSE has not significantly played its vital role of raising capital.
ABC Holdings, for example, has significant capitalisation requirements in the coming year for its banking operations and the probability of raising an amount as high as $100 million for Zimbabwe alone on the local bourse is quite low if not impossible.

Yet, the bank cannot afford to be relegated to a non-Tier 1 band if it is to have its targeted relevance in the banking space. It therefore makes more economic sense for them to have a single financially sound shareholder to inject capital in its banking operations.

Likewise, Masawara has also indicated that they intend to carry out a recapitalisation exercise for its operations after delisting.
Although they did not give finer details on how they intend to capitalise the group’s operations, it was acknowledged that hotel operations as well as the insurance business required additional capital to grow and compete with other players in their industry.

Judging from the delisting trends, the investor with the deeper pockets seems to be having the upper hand on the activity of the market.
In this illiquid environment, not much can be expected out of local shareholders as far as capitalisation is concerned.

Only a few notable institutional shareholders have been able to inject significant capital in companies they have a sizeable shareholding.
A recent case is that of NSSA which financed the upgrading the starafricacorporation’s sugar plant which cost them $6 million.

This is one of the rare cases as most of the other companies, especially in manufacturing, are languishing due to lack of shareholder support.
Ideally, it would work better for such companies to delist if they were to identify an investor who is willing to inject capital and hopefully turn the fortunes of the company around.
Art Corporation is one such example. At the end of last year, an Asian investor snapped about 40 percent of the company’s shareholding and had plans of injecting $15 million in the business through a revolving facility over a period of five years.

Recent reports have indicated that the major shareholder has plans to make an offer to minorities to acquire the rest of the stake in the company, and subsequently delisting the company from the exchange.

It is then hoped that the investor can address the capitalisation challenges of Art and maybe sustainable profits can be generated going forward.
It is also notable that some companies currently are just listed for the sake of it. They have been perennial under-performers, which are not expected to attract any investor capital.
It would be rational for such companies to delist and try working on reviving their business or even courting potential investors without the hassles of exchange regulations.

The Lusaka Stock Exchange (LUSE) has a total of 24 counters which have a converted market capitalisation of $4,5 billion compared to 61 counters on the ZSE with a total market capitalisation of $5 billion.

Furthermore, the daily turnover on the LUSE is nearly equal to that of the ZSE.
Clearly, ZSE is bloated with a lot of inactive counters that might as well delist and sort out their company challenges in private.

Companies such as ZECO have a market capitalisation of $50 000 while General Beltings and Pelhams have market capitalisations of $161 000 and $300 000 respectively. Surely, should these companies remain listed?

Being a listed company on the local market has proved not to come with all the expected benefits of being a public company.
Given the right investor with the financial muscle, it can only work in one’s interest to delist and get capitalised.

Some companies have even complained that they have suffered due to a low share price and hence shareholders were bound to lose if they were to negotiate a price with potential investors on market valuations.

Of course this is arguable and is a debate for another day but it is still one of the contributing factors as to why other companies are opting to de-list.
An improvement in the economic environment will play a significant role in the resumption of new listings and given the economic prospects for the near future, we are likely to see a leaner ZSE than the one we have.