NEWSDAY business reporter Victoria Mtomba caught up with Securities Commission of Zimbabwe chief executive officer Tafadzwa Chinamo and questioned him on the securities and capital markets in the country. Below are excerpts of the interview.
ND: How can you describe 2013 as a regulator of capital in Zimbabwe?
TC: Before answering that let’s get one thing straight, the SECZ regulates the capital and securities markets, not listed companies as such. Listed companies issue securities that trade on the stock exchange and therefore our interest in them is merely to ensure that their shares or listed securities are traded in accordance with the securities laws. How these securities trade in part is influenced by the conduct of the listed companies hence our occasional “intrusion”.
2013 was tough in that we had some run-ins with listed companies, but overall it was progressive in that we are moving in the right direction in getting Zimbabwe to be recognised as a respectable investment destination. The commission’s mandate is an ongoing endeavour made challenging by the ever changing operating environment to which the commission must continuously keep up abreast. Failure to do so means not just the market, but the nation at large loses in terms of the much needed capital flows.
ND: What were the major challenges that were faced by listed companies in 2013?
TC: The usual challenges we hear about these days from company bosses namely:
persistent liquidity challenges;
low subscription level in their recapitalisation efforts (rights issues);
viability challenges (uncompetitive business models due to obsolete equipment and lack of reinvestment);
non compliancy with continuing obligations hence a number of delistings/suspensions witnessed during the year.
As a result of these challenges we are finding more and more companies failing to fulfil their listing obligations hence the shortcuts and our interventions.
ND: How can the challenges be addressed?
TC: General macro-economic stability is key in attracting investment
Winning back lost trust for the restoration of investor confidence
Policy consistency and clarityis critical for business planning purposes and attraction of both foreign direct and portfolio investment.
At the company level bosses need to reinvent their companies and business models because the old way of doing things just isn’t working any more for a lot of them. There has to be a realisation that borrowed capital is expensive and should only be accessed only if there is a strong case for income generation to meet the repayments.
Boards and shareholders need to be more intrusive and probe management on all major strategic decisions. This will lead to more openness and transparency on how these companies are being run and hopefully save many of them from the disasters that are so common nowadays. All too often because to the secrecy surrounding how companies are being run, shareholders only get to know of the problems when a liquidator is called in. That has to change.
ND: The number of mining or resource-based counters trading on the local bourse has not changed since 2009. As a regulator, what are you going to do to encourage the participation of more mining companies on the ZSE?
TC: We should at least be thankful that none have delisted as has been the case with the Industrials. But yes, with mining being the largest export it does not augur well for the ZSE to only have four listed mining companies with a market capitalisation of $61m which is the same as that of Mash Holdings and less than FBC. The commission will continue to lobby through the Ministry of Finance for a conducive operating and investment environment for the sector. The commission also believes that the ZSE can be another avenue for broad based local empowerment, indigenisation.
ND: What can you say were the most difficult moments that you faced this year as a regulator when you were dealing with listed companies?
TC: We are still in the trenches battling the resistance by listed companies to disclose more financial information to their shareholders. This has been at the centre of the public spats reported in the media between us and some companies.
Trying to overcome the effects brought about by the conflicting and outdated legislation (listing rules and the Companies Act). The lack of clarity makes our job more difficult and confuses everyone when it comes to things like de-listings.
Limited technological infrastructure continues to hinder more efficient clearing and settlement. This on occasions has caused many frustrations when trying to resolve disputes between market players and their clients.
Because of low local investor participation in important matters that affect their companies we found ourselves being forced to step in, much to the chagrin of the a number of bosses. I don’t have to remind you want I have been called in the last twelve months.
For a developing country with an emerging capital market we had far too many de-listings and suspensions. In a way it speaks highly of our adherence to standards and rules, but the market and the country as a whole would be better served with more listings and issues.
ND: How do you seek to resolve those challenges in 2014?
TC: The commission has already kickstarted the process of tightening the regulatory framework to curb future malpractices. The review of the ZSE listing rules is at an advanced stage so too are members’whichneed to be reviewed in line with market developments and in alignment with the Securities Act.
The commission is strengthening its enforcement arm to ensure compliance with the rules by investigating potential violations and disciplining individuals and firms that violate them hence more high profile sanctioning of violators.
The publication into law of a binding corporate governance code would ensure company executives desist from unethical practices and the SECZ will play its part in pushing for this.
The review of the current outdated Companies Act would also go a long way in resolving conflicting provisions that are posing arbitrage opportunities on the market and again the Commission will be active in this endeavour.
ND: Now that ZSE has a board and a chief executive officer what are the things that you would want to be done differently to ensure transparency?
TC: Completion of automationand demutualisation of the ZSE.
Completion of the review of listings rules in line with market developments.
Subsequent review of members rules in line with the provisions of the Securities Act and automation.
Introduction of alternative investment options (products and services) for investors to choose from.
Attraction of more quality listings on board.