Poor management, debt and economy triggers ZSE delistings

By The NewsDay | Jul. 18, 2013 | 6 Min read

THERE is always strength in numbers. The more individuals or organisations that you can rally to your cause, the better.

THERE is always strength in numbers. The more individuals or organisations that you can rally to your cause, the better. This adage is, however, not always applicable in markets akin to Zimbabwe, where fundamentals are askew. In fact, anyone who thinks there’s safety in numbers hasn’t looked at the parlous state of the Zimbabwe Stock Exchange (ZSE).

REPORT BY BENARD MPOFU

The ZSE at dollarisation boasted of 79 companies a lot of which were shielded from market realities by State controls before the new currency regime.

The delisting of Cairns and Apex on Tuesday has reduced the number of companies actively trading to 66 while ZSE’s market capitalisation hovers around $5,7 billion. Apex was delisted for failing to meet continuing obligations of the ZSE listing rules.

For the ZSE, the adage which goes, the first shall be last seems to be true. The exchange despite being the oldest continues to lag behind both in technology and attractiveness to investors due to several factors related to the economy and politics of the day.

Unlike the ZSE, Zambia’s Lusaka Stock Exchange which has 20 quoted companies has a market capitalisation of $10 billion.

Experts say the advent of the multiple currency regime has lifted the veil as companies have started to drop from the bourse.

A lot of blame will be put on poor government policies and a weak investment climate, but frankly, did these companies deserve to be there in the first place?

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The past two months has seen the ZSE suspending or terminating the listings of securities in listed companies.

Last month, the ZSE struck off Gulliver Consolidated Limited, Steelnet and Lifestyle Holdings (formerly TN Holdings) from its official list due to restructuring exercises among others. Lifestyle proposed to delist following a Scheme of Arrangement sanctioned by the High Court and the exchange gave the company the greenlight. Loss-making Gulliver, which had been struggling to meet listing requirements, on the other hand opted to delist owing to serious viability problems. Before that, financial services group Trust Holdings had also been suspended early in June.

Securities Commission of Zimbabwe chief executive officer Tafadzwa Chinamo contended that the chickens were coming home to roost as loss-making counters delisted from the bourse despite embarking on capital-raising initiatives since the introduction of multiple currencies in 2009.

Official figures showed that $126,4 million was raised through various recapitalisation activities mainly rights issues amid indications that the figure could be surpassed this year after the July 31 elections. Demand for fresh capital according to the ZSE was expected to increase as companies retooled their businesses and retired expensive debt.

Chinamo attributed the delisting of quoted companies to poor corporate governance and a general reluctance by shareholders to make company executives accountable to them.

Experts said some listed companies had in recent years lurched into going concern crises due to huge debts and negative balance sheets.

“This economy requires a certain type of ingenuity to manoeuvre. Companies that do that well are handsomely rewarded,” Chinamo said.

“It’s unfortunate that some companies are delisting. It’s harsh, but then if you look at most of these companies, they have managed to raise capital over the past five years. So the question would be, how has this money been used? I think shareholders should start demanding good leadership. People running companies should be accountable to shareholders.”

This, Chinamo added, had resulted in some shareholders holding on to capital. He cited consumer-facing industries such as OK Zimbabwe and Delta as examples of companies that had managed to gain good shareholder support on the back of solid business plans.

Official statistics showed that as of last month, 35 of the 55 corporates that published financial results have reported either losses or a slowdown in the rate of profit growth.

ZSE chief executive officer Alban Chirume attributed the delisting of companies to the subdued performance of the economy. He added that issues relating to profitability, restructuring breaching and continuing obligations might also result in companies being suspended.

“Right now, companies are struggling to source funds for working capital and capital expenditure.

The economy has had an impact on listed companies and staying listed has been a challenge for some companies. Companies were expected to meet costs related to listing such as publishing financial results.”

Zimbabwe Chamber of Commerce chief economist Kipson Gundani argued that the decade-long economic meltdown which ended in 2009 after the formation of the inclusive government continued to haunt listed companies pointing out that engineering firms had been hardest hit.

“Companies remain technically broke, capital remains the key issue that has made it difficult for them to be viable ,” Gundani said.

Local brokerage firm, MMC Capital said Zimbabwe’s external debt estimated at $10,7 billion has choked companies from accessing long-term finance. “In our view, it is critical to resolve the debt issue. The most feasible way would be privatisation of all the loss-making parastatals,” MMC said in written responses.

“Such a move will reduce these entities’ demands on the fiscus, creating a platform for the government to prioritise on other critical issues such as servicing of external debts. Another low-hanging fruit would be expanding the government’s revenue base through formalisation of the informal sector. This move will actually improve government collections by not less than 50%.” While predominantly locally-owned manufacturing and engineering firms appeared to be in doldrums, major mining companies with primary listings offshore continued to be reluctant to have a secondary listing on the ZSE citing unfavourable policies.

Reasons for delisting

THE ZSE listing requirements spells out reasons for discontinuing trading on the ZSE. Below are reasons why listed firms are suspended or delisted.

Unilateral suspension

lThe (ZSE) committee may subject to the provisions of ZSE Act, if it is of the opinion that it is desirable to do so and/ or if the listed company has failed to comply with the listings requirements, suspend the listings of securities in a listed company and may impose such conditions as it may in the circumstances deem appropriate for the lifting of such suspension.

For example, a temporary suspension pending an announcement may be lifted when the announcement is made or in the the case of reverse takeover, the lifting of the suspension may be made conditional upon the publication of Category 1 of the circular and listing particulars.

lWhen the listing of securities in a listed company is under the threat of suspension, the affected company shall be afforded the opportunity of making representations to the committee in support of the continued listing of such securities prior to the committee making any decision to suspend such listing.

lWhen the listing is suspended and the affected company fails to take adequate action to obtain the restoration thereof within a reasonable period of time, the committee is likely to terminate the listing.

Suspension on request

The committee may grant a request for suspension of any listed securities in the following circumstances: lWhere a listed company is placed under provisional liquidation or judicial management or subject to an application for a scheme of arrangement or reconstruction under the ZSE Act.

lWhere the request is made by directors of a listed company and it is apparent that there are two levels of information in the market and the committee considers that this situation cannot be remedied by the immediate publication of an announcement to clarify the situation.

Termination Unilateral termination The committee may, if it is of the opinion that it is desirable to do so and/ or if the listed company has failed to comply with the listing requirements, remove from the list of any securities previously included therein; provided that the listing of such securities shall first have been suspended in accordance with above provisions.

lWhen the listing of securities in a listed company is under threat of termination, the affected company shall be afforded the opportunity of making representation to the committee in support of the continued listing of such securities prior to the committee making any decision to terminate such listing.

Termination on request A listed company may, at any time, make written application to the committee for a deletion of its securities from the list from which time and date it wishes deletion to be effective and the reasons for the request. The committee may grant the request for termination if it deems this to be desirable; and it may deem such securities shall only be removed from the list where the listed company’s shareholders in general meeting have approved such removal. ZSE continuing obligations include: