The Zimbabwe Stock Exchange has finally launched automated trading, but there are many deeper problems facing the bourse.
History was made this summer as the Zimbabwe Stock Exchange (ZSE) successfully launched automated trading on 6th July, linking computerised trading of equities to settlement via a computer-based central securities depository. The bourse, founded in 1896, has long been using outdated call-over trading systems and paper-based registration of share ownership.
The new system will increase efficiency but is unlikely to cure malaise at the exchange including low liquidity and trading activity and the lack of companies coming to market to raise capital. The total value of shares on the exchange at end-June was down 11% to $4bn compared to the first half of the year. Leading stockbrokers and commentators say action on the exchange depends on improvements in the bigger economy. Government has warned that little growth is expected due to low commodity prices, and that expensive finance and power shortages are causing many companies to close.
New systems are go
According to Alban Chirume, CEO of the ZSE, exchange staff cheered as the first trade went through successfully, adding: “We are fully operational.”
Benson Gasura – ZSE board member, Chairman of the Stockbrokers Association, and managing director of FBC Securities – says the first day had been slow “as expected” but that trading was picking up as the week progressed. “Things are looking positive, our dealers are operating from our offices,” he says. “Our clients, both local and foreign, have been waiting eagerly for the changes.”
Trading is now only allowed in dematerialised securities, where paper share certificates have been replaced by computer entries. Chirume said that all the ZSE shares are now dematerialised apart from one company that was under judicial management.
ZSE governance is also in the process of transforming itself from a mutual company into a for-profit business through a process known as “demutualisation” that could assist it to raise capital and even to list its shares for trading on its own trading boards. Minister of Finance Patrick Chinamasa issued the share certificates in March in the new company, Zimbabwe Stock Exchange Ltd, which is 32% owned by the government and 68% owned by stockbrokers. Some commentators were surprised that the company was set up to be majority owned by stockbrokers.
One stockbroker representative is allowed on the interim board to supervise the demutualisation. The shareholders were still in discussion at time of going to press but it is likely that there will be a new board which will mix directors with close knowledge of the market and those representing other interests, including businesses who want to raise capital and issue shares, institutional investors such as pension and insurance funds, and the general public. The next step will be to offer 50% of the shares to new investors, after which the government would own just 16%.
The first listing for three years came on 8th June when manufacturing and construction company Masimba Holdings successfully applied to add shares of its plastics manufacturing subsidiary, Proplastics, to the trading boards through a dividend-in-specie [non-cash]. The previous listings were TN Bank in 2012 following a de-merger of Lifestyle Group and Padenga Holdings in 2010 also through a dividend-in-specie following its unbundling from Innscor Africa. The last initial public offering (IPO) of shares was Zeco Holdings in 2007.
The overall trend has been delistings as the number of companies has fallen from a peak of 80 to 61. Paint and chemical products manufacturer, Astra Industries, left at the close of business on 30th April after majority shareholders and staff increased their combined holding so that four shareholders owned 98%, breaching the rule of 30% free float, and applied for voluntary delisting in line with the rules.
Other recent delistings include TA Holdings and ABC Holdings in February. Since 2009, when US dollars were introduced as national currency, a total of 16 companies have been removed and others suspended. More delistings this year could include leading hotel group Meikles Limited, Dawn Properties, ART Corporation and African Sun.
A damaging row in February saw Meikles suing the ZSE for $50m in damages and warning it may delist after its shares were suspended from trading for a week in February over a dispute on balance sheet disclosure. Meikles said its share price had fallen and its reputation suffered, but on 3rd July it published revised results giving detailed disclosures in line with the ZSE requests.
The Zimbabwean economy remains in turmoil. Other companies may be insolvent but still ticking over as manufacturers with high hard-currency costs and ancient machines cannot compete for exports or even against imported goods. Companies complain they cannot raise money successfully on the bourse due to investors not having funds and that share prices are down to a fraction of their true value.
Gasura says that share prices and market valuations have fallen so there is a mismatch between values of the assets owned by companies and their market capitalisation. He adds that some recent capital raisings had instead used debt or private equity, where prices are negotiated rather than set by the market, and this was spurring delistings.
The ZSE is looking for new areas of activity including working with government and the Reserve Bank of Zimbabwe (RBZ) to create an active market for government and corporate bonds. It is also working with the Securities and Exchange Commission of Zimbabwe (SECZ), backing on a second-tier Zimbabwe Emerging Enterprise Market (ZEEM) to help small and medium enterprises (SMEs) to list and raise long-term capital more easily.
Gasura says the turnaround may take some time: “The stock exchange is the barometer of the economy. Manufacturing has shrunk by 34% and many of the companies are reporting losses.” However, he is satisfied that share prices on the exchange offer value to investors and says there is significant foreign interest accounting for 70% of activity but few shares on offer from sellers at current low market prices: “Across the board there is no doubt that the ZSE is offering bargains.”
Other analysts are less optimistic, warning that investors are staying away due to inconsistency and uncertainty on policies and that many leading companies are in “survival mode”, trying to clear debts and wondering if they should stay in production or mothball equipment until the political and economic situation becomes clearer.