Powerspeed de-listing piles pressure on ZSE

THE year 2020 has not been good for the Zimbabwe Stock Exchange and the proposed de-listing of Powerspeed make it seem like the net benefits of a listing have lost their allure.

Before June, brand ZSE was struggling to attract portfolio investors as those already invested were entrapped, failing to get disinvestments and dividends out of the country.

The foreign investors turned to dual listed insurer Old Mutual as a way of moving capital out, but the increased demand for the share piled even more problems to the ZSE.

The Old Mutual share price was used to calculate the Old Mutual Implied Rate (OMIR), a gauge, used to calculate a potential forward rate for the Zimbabwe dollar by measuring the difference between Old Mutual Ltd.’s share prices in Johannesburg, London and Harare.

Increased demand for Old Mutual meant a higher OMIR and subsequently a higher parallel market exchange rate. At peak, the OMIR reached 122. The parallel market exchange rate followed too, and the authorities were not happy.

The OMIR is among many “contrived phantom exchange rates” in use that “conspire to defeat fiscal policy,” the government said in June.

To eradicate OMIR, government halted trading on the ZSE and eventually ordered the removal of Old Mutual and other dual listed companies off the bourse. While PPC Limited and Old Mutual are still to find a home, Seed Co International has since moved its listing to the Victoria Falls Stock Exchange (VFEX), a bourse created to attract new listings and foreign portfolio investors. The VFEX trades in US dollars only. But for the ZSE, halting trades for more than a month and the directive to remove dual-listed stocks, left its reputation bruised and battered.

Availability of foreign currency at the auction system has provided foreign portfolio investors an avenue to finally take their money out. For the three months to September, foreign investors sold off $4, 6 billion worth of shares and only bought $203 million worth.

There was more bad news. African Sun announced it would acquire Dawn Properties and the latter would have to delist from the ZSE. Zimre Holdings Limited is doing the same with Fidelity Life and Zimre Property Investments.

Then there is also troubled Falgold, which has also said good bye to the bourse. In its justification for the de-listing the miner said its listing on the ZSE had, in recent years, not provided any benefits.

“In fact, the ZSE listing has been detrimental given ongoing legal, compliance and audit costs, and the inability to raise capital through the sale of shares,” reads part of its circular to shareholders.

While the above de-listings and potential de-listings can be explained away without much fuss, it is the proposed de-listing of Powerspeed that raises fear that the ZSE is losing its way as a venue for raising capital. Stock markets are at the core of the free market economic system. They allocate capital effectively to businesses.

Unfortunately, Powerspeed, which is originally a light engineering business focused on the electrical sector, but now dominated by the Electrosales retail operation, doesn’t see the ZSE as such. Its reasons for de-listing are damning to the ZSE.

It is Powerspeed’s reasons for de-listing, rather than the de-listing itself (it hardly traded), that has market watchers fretting. The ZSE has its work cut out.

The harsh criticism of the bourse, from a long listed company, sponsored by some of the market’s biggest and oldest stockbroking and asset management firms, will put many potential listings further aside.

Powerspeed’s reasons for de-listing were damning. It said in the current environment its listing on the ZSE has very little benefit and considerable costs.

It added that the lack of capital from institutional investors means that the listing has limited value in terms of a mechanism to raise capital and ongoing legal, compliance, and audit costs impede shareholder returns.

“In the face of a difficult trading environment the additional costs of being listed, with no compensating benefits, can no longer be borne by the Company,” reads part of its circular to shareholders.

Shareholders are expected to vote on the proposal at an Extraordinary General Meeting to be held on December 14, 2020.

Shareholders wishing to exit Powerspeed are being offered $1,90 per share, the current trading price. Ironically, the company says the ZSE pricing has not matched its ongoing asset values but still offers minority shareholders a ZSE market determined share price.

While Powerspeed believes the ZSE is no longer a mechanism to raise capital, “those who are serious about raising money have raised it” according to a local stockbroker who spoke on condition that he cannot be named for professional reasons.

Head of Business Development at ZSE, Anymore Taruvinga said ZSE remains a relevant securities exchange for capital raising, issuer and participant regulation and provision of market information.

“Whilst the operating environment has stifled the growth in new listings, the ZSE has remained a viable exchange offering intermediation in both the primary and secondary markets, providing regulatory oversight to market participants and issuers and ensuring that market information is disseminated,” Taruvinga said.

Secondary market activity from 2016 has generated trades totalling US$1.93 billion and $12.4 billion comprised of investments made by pension funds, corporates, foreign investors and individuals.

Between 2016 and 2020 the ZSE handled 6 rights issues and 1 IPO raising a combined capital of US$179.7 million and $75 million. During the same period the ZSE has listed 4 companies through introduction.

Edgars is the latest to come to the bourse for capital raising. The clothing manufacturer and retailer raised $70 million through a rights offer.

The ZSE is also working on various initiatives to provide a viable platform for companies to raise capital.

The Victoria Falls Stock Exchange is a new offering and apart from Seed Co International, five more companies have shown interest to list, according to a ZSE official at a recently held webinar.

Products such as REITS and ETFs are also in the pipeline and can be introduced this year or early next year.

Such products would quieten, but not completely silence, the doubters who now see no value or appeal in listing on the ZSE.

New listings would be good optics but chasing both ZSE and VFEX will not be easy. The bourse’s task is unenviable.

In emailed responses to Business Weekly, Taruvinga said the ZSE has taken a number of initiatives in response to the Zimbabwean economic needs and the demands from investors and the regulators.

“The demands for increased disclosures are not meant to unnecessarily burden issuers but a response to an environment where investors demand more information before they invest. Competition has increased due to technology developments that make access to different securities exchanges by investors possible. Investors in advanced markets tend to require more disclosures as a way to reduce investment risk,” he said.