Demise of the stock exchange

Demise of the stock exchange

ASTRA Holdings is planning to de-list from the domestic bourse. The new shareholders, who now hold over 80 percent of stock in the company, are compelled to do so by listing regulations after taking up more stock than they should have left to allow for at least 30 percent of the shares to be free floating.ZIMBABWE STOCK EXCHANGEArt Corporation, which has just announced plans to buyout minorities, is also looking for the exit door. The company has new shareholders, thanks to foreign capital.
TA Holdings, which de-listed its insurance unit, Zimnat, in 2009, had long been in the departure lounge and finally de-listed in February.
During the same month, ABC Holdings, that dually-listed banking outfit bought by famed banker and past Barclays Plc chief executive officer, Bob Diamond, through his Atlas Mara investment vehicle which he jointly controls with African billionaire Ashish Thakkar, voted with its feet after the takeover, leaving the bourse one more company poorer.

It’s a pattern that should seriously leave executives and brokers on the Zimbabwe Stock Exchange (ZSE), which was demutualised a few weeks ago, surely worried: After surviving possible death during the hyperinflationary decade to 2008, the bourse will require real might to endure the demise of companies that make it, or those choosing to leave because they find no value in a listing.
A total of 16 companies have de-listed from the ZSE since 2009, when the country adopted a hard currency economy to deal with a hyperinflationary scourge that left everyone, and everything, miserable.
There has been no new listing, except for an unbundling done by Innscor Africa of Padenga Holdings which listed through a dividend in specie in 2010.
Interestingly, when everything was razed down by hyperinflation, it was only the ZSE that remained standing. Of course it had the black market to compete against.
During the hyperinflationary period, people and companies sought assets to escape a daily erosion of value of the domestic currency, which was officially ditched in 2009.
They bought either properties or foreign currencies, and also trooped to the stock market for equities.

The stock exchange roared, and for consecutive years was voted among the best performing bourses on the continent.
But the bubble burst in 2009 when Zimbabwe officially allowed trading in foreign currencies. The stock exchange essentially crushed, with values coming down to insignificant numbers.
Those valuations of the Zimbabwe dollar era were proved artificial, or downright wrong. Yes, there were multiple exchange rates which were used to measure the worth of the Zimbabwe dollar in US dollar terms, and if one used the official exchange rate, something whose real worth was about US$10 would have a value of even US$1 million.
It was strange, but the equities market never bothered: those that had never heard about the stock exchange quickly familiarised themselves with the stock market. It became a market for the rich and the poor, the rural and the urban, the go-to safe haven for those who cared to preserve their wealth.
But it was all a fallacy.
The game has changed, and fair is foul and foul is fair, to borrow from the chant from Macbeth.
Of the 16 firms that have de-listed since the country adopted a hard currency regime, eight have done so voluntarily, while eight were forced to do so after they became insolvent: Apex, Gulliver, Trust Holdings, Cairns Foods, David Whitehead, Barbican Holdings, Steelnet and Interfin.
Four are currently suspended, and these are PG Industries, Cottco, formerly AICO Holdings, Phoenix and Celsy.
Eleven of these companies delisted from the ZSE last year alone, primarily due to liquidity challenges that have resulted in companies failing to raise money on the stock market and attracting new investors to inject fresh cash.
More companies are expected to delist this year.
Retail and hotel group, Meikles, which was suspended earlier this year after a tiff with the ZSE, has warned that it is contemplating its future on the bourse.
Dawn Properties could give the bourse its back after announcing it would be buying out minorities and exiting the stock market.
African Sun, whose chief executive officer resigned unceremoniously on the eve of an annual general meeting of shareholders over a week ago, is also a candidate for de-listing after shareholder changes in the past few months.
The primary purpose for listing on a stock market is to raise cheap money through either initial public offers on listing, or rights issues for those already on the bourse.
But the liquidity crunch in the economy has made this impossible. Of all companies that have so far successfully raised money, this has come from offshore investors.
Such foreign take-overs have necessitated exit from the ZSE after existing shareholders were diluted into inconsequential fractions.
The reason is that valuations based on share prices have been very low.

Horticultural concern, Interfresh, which delisted on the last day of trading in 2013, highlighted this concern.
Chief executive officer, Lishon Chipango, said: “At the moment for us there is not too much (gains from listing). If you look at the contextual frame work of the stock market, one of the benefits of being listed is to raise capital, but if you raise capital when the shares are so depressed, you are not going to raise that much. So the issue of benefiting if listed maybe down the road. (I) would not be surprised if others followed (us by delisting).
“The other aspect is there is no money in Zimbabwe. All the capital being raised is external. For us, it is not attractive,” Chipango said.
He then mourned over the discounted rate at which the company’s shares were trading.

“The rights issue to raise the US three million dollars (in 2012) caused a dilution of 75 percent because we used stock market valuations. Now if at that time we had raised money using Net Asset Value instead of stock market valuation, the dilution would have been 15 percent. You see why we are running away from the stock market? We are running away from the stock market valuation,” said Chipango.
Yes, few will be able to run away alive. An accountant recently revealed that 90 percent of listed companies are insolvent. The majority, apparently, are in the manufacturing sector.
That sector, inevitably, is in a state of extreme distress, with many facing closure if they have not already collapsed.

When Zimbabwe ditched its defenceless currency in 2009, it lost the ability to control its monetary policy and create its own liquidity through money printing.
To create liquidity under a hard currency environment, the country has to increase its exports, which help create the stock of money in the economy.
That has not happened. Lack of capital has meant that companies are operating using antiquated machinery, and these come with high production costs that include labour costs.
So Zimbabwean companies have been unable to compete with cheap imports, which now dominate the local retail market.
Consequently, the trade deficit has been widening since 2009, creating problems for the current account, which is this year projected to deteriorate from a deficit of US$3,351 billion in 2014 to US$3,431 billion.
It would appear the ZSE is aware of the trajectory to its demise. The bourse’s executives are contemplating introducing a secondary market or exchange, on which lowly capitalised firms will be housed. That may leave the current exchange with only a few companies, with the rest falling to the lower tier market.

But still, that may not save the situation – it’s a slippery slope from which it is now very difficult to avoid a fall.
One company down is a depletion of value for the stock exchange.
It certainly looks like it will get worse!

  • Chipikiri

    Tell the owners of the country how it works. They think taking over buildings and pieces of land is winning the economy. A little learning is truly a dangerous thing. Look at this man made fiasco.

  • David

    ZSE Listing rules should be revised,a great article though!

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