Paul Nyakazeya and Phillimon Mhlanga
BRITISH-BORN tycoon, Nicholas Van Hoogstraten’s Messina Investments (Private) Limited is at the centre of investigations by the regulatory authorities after the investment vehicle allegedly bought shares in CFI Holdings Limited during its closed period, the Financial Gazette can reveal.
CFI Holdings was last month suspended from trading its shares on the Zimbabwe Stock Exchange (ZSE) to allow for the publication of its audited financial statements for the year to September 30, 2015 and investigations into trades conducted during the closed period.
The suspension took effect on January 29.
While the conglomerate is still to publish its financials, about two months after the deadline, it has now emerged that the shares that are at the centre of the suspension were acquired by Messina Investments.
The alleged insider trading involves CFI Holdings stock worth US$189 529,45. The suspicious market activity occurred on January 21 when Messina Investments bought 3 313 452 CFI shares at US$0,0572 each.
Owned by Van Hoogstraten, Messina, along with EFE Nominees and Zimcor, form the three investment vehicles through which the businessman controls close to 22 percent of the CFI stock.
ZSE insiders said the conflict of interest allegations arises from the fact that a key member of Van Hoogstraten’s team, Shingirayi Chibanguza, sits on the CFI board as a non-executive director. Chibanguza also represents Van Hoogstraten on the boards of several other companies, among them Hwange Colliery Company Limited and Rainbow Tourism Group.
What the ZSE and the Securities Commission of Zimbabwe (SECZ) are trying to establish is whether Chibanguza had influence in the decision by the British tycoon to acquire shares in CFI during the closed period.
Contacted for comment on Monday, Chibanguza said he could not comment on the issue as the company (CFI) was on closed period.
“I can’t comment on the developments at CFI Holdings at the moment because we are on closed period. I am not allowed to say anything otherwise I will be in trouble. Let them (SECZ) complete their investigations.”
In the case of CFI, its closed-door period started two months before its financial year-end (September 30, 2015), and will only end once it has released its financials.
Contacted for comment this week on Monday, ZSE chief executive officer, Alban Chirume, confirmed the suspicious trades, but referred the Financial Gazette to SECZ, which was investigating the issue.
“Remember that Messina Investments is a shareholder in CFI Holdings. We don’t investigate shareholders, but we have since reported the case to the Commission.”
SECZ chief executive Tafadzwa Chinamo also confirmed that Messina Investments was under investigation for alleged insider trading involving CFI, but hinted the process may take long.
“We have started the investigations and we are not going back because it’s a serious issue. It could take time, but we are going ahead. It’s like a court case. When we are done (with investigations), we will present charges and they (Messina) will respond. So it’s difficult to tell when we are likely to conclude the matter.”
ZSE rules prohibit insider trading, which occurs when a person considered an insider in the business trades in a company’s stocks relying on privileged information they have owing to their being close to the company in question.
A person becomes an insider if they have privileged information about the company which is not publicly available.
Economic analyst, Taurai Chinyamakobvu, said insider trading is considered unethical and borders on illegality because it allows insiders to take positions and make profits to the detriment of other existing and potential shareholders.
“Stock markets are anchored on the basis of efficiency, that information is available to interested parties at the same time and that falls away when insiders use privileged information,” said Chinyamakobvu.
“The laws of Zimbabwe do not adequately criminalise and deal with insider trading. The ZSE does have provisions about disclosures, which control insider trading, but these are not adequate in curbing the practice. This issue needs to be adequately dealt with during the wholesale change that the law development commission is making to the companies Act (Chapter 24:03), which is pretty much out of date with present day circumstances. That change will align Zimbabwe’s laws with global best practice in curbing insider trading,” he added.
Nexus Insurance Brokers analyst, Nathan Mvere, said insider trading creates an unfair advantage and distorts the trading field and is a breach of the Exchange Act. “It distorts stocks and share prices because one manipulates the system to their advantage because of access to confidential information,” he told the Financial Gazette.
He said a shareholder or fund manager who has access to inside information on companies and developments within those companies that will affect share-prices in the near future can dump their stock and avoid taking a hit and a loss to his/her clients and shareholders.
“He/she can also use this information to buy into a company’s shares just in time for a huge boost in stock value due to an expansion or a high value acquisition or absorption of another company. So in essence, one person can make a huge gain because of access to confidential info while the rest of the market takes losses.” Mvere said.
He said insider trading is not felt by the ordinary investor because the loss/gain of value in a stock is spread across the entire stock portfolio meaning that for a single investor the effect or “hit” of a loss due to insider trading will not be significant.
“It’s mainly a points game which achieves high value in numbers. So, investors and shareholders actually gain significantly if their fund manager makes a big return on the stock market, but if the State prosecutes the fund manager and he/she is found guilty of insider trading, they can be deemed complicit if evidence suggests and may also be charged with their stocks being seized by the State,” he said.
Economist and shareholder activist James Ndiyamba said insider trading was illegal adding that it was equivalent to fraud if not worse as one would be abusing a privilege to information to their advantage at the expense of other shareholders.
“How best can you describe a person who takes advantage of information that is yet to be made public to their advantage? It is more like trading from an offside position…having an unfair and immoral advantage thus flying in the face of integrity and many other principles of professionalism,” he told the Financial Gazette.
He said such an act can result in the public being sold shares that will become “completely valueless in the short term”.
CFI Holdings last year sought to raise US$20 million through a rights issue in an effort to resolve capitalisation challenges across its strategic business units, while the part disposal of Langford Estate to Fidelity Life is expected to clean the balance sheet through the extinguishment of US$16 million debt.
CFI has since dollarisation experienced significant financial strain largely caused by expensive borrowings, impact of ageing equipment and infrastructure on efficiencies and overheads which are not adequately aligned to the low capacity utilisation.
In 2014, CFI signed a Memorandum of Understanding with local banks who were owed a combined total of US$13,3 million for a land for debt swap, but derailed when parties could not agree on acceptable valuation.
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