No champagne for ZSE
But, as if that was how fate would have it, he has only managed a ‘toast’ once after Zimplow Holdings’ new shares commenced trading on the local bourse last month, with about 1,136 million shares changing hands at 4,5c, a premium of 28,57 percent on the last trading price of 3,5c.
Listing interest among local companies, which characterised the domestic bourse before the decade-long crisis crept into the market in 2002, has disappeared.
In its place is growing apathy to the bourse — in fact, several firms have delisted from the bourse, which has only witnessed, over the past four years, reverse-listings.
There was TN Financial Holdings Ltd which reverse-listed through Tedco Ltd. Then there was Interfin Holdings Limited’s reverse listing through CFX Financial Services. Crocodile producer, Padenga Holdings was unbundling from Innscor Africa and listed by way of dividend in specie.
The listing drought on the ZSE is despite reports of interest by several companies, particularly foreign-owned firms seeking to comply with the country’s indigenization law, to list on the Zimbabwean bourse.
The ZSE last had an IPO in 2007 when Zeco Holdings listed.
Apart from a series of unbundlings that saw Dawn Properties, Red Star Limited, Zimbabwe Property Investments and Pearl Properties Limited being listed in the last nine years, new listings have been as rare as snow in this part of the world.
Analysts say a combination of bad policies such as indigenisation and empowerment laws have not played in favour of the bourse.
Finance Minister Tendai Biti commended Zimplow Holdings when they issued new shares saying “as government it gives us pleasure each time there is positive activity on the ZSE”.
“ZSE plays a critical role in the economy. We take this as a sign of confidence in the economy. We are happy to note increased interest in our stock market…This is a vote of confidence in this economy and in the potential of this economy,” said Biti.
The issuing of new shares came after Zimplow acquired Tractive Power Holdings Limited to consolidate its position in the agriculture sector and benefit from an expected growth in demand for engine-drawn implements. Tractive Power delisted as a result of the acquisition.
Essentially, since the economy was formally dollarised in 2009, there has been no IPO.
Africa Investment Markets executive director and economist, Farai Dyiraku-munda, told The Financial Gazette’s Comp-anies & Markets (C&M) that the economy was in recovery mode and there was a growing pipeline of potentially profitable companies that were suitable candidates for listing.
“Their primary motive for listing would be to enhance their capital structures and raise money to fund expansion initiatives that will increase company value,” he said.
However, Dyirakununda said uncertainties around pre-money valuations and post IPO market performance remain on the mind of companies while execution risk has also been a notable concern.
“Pricing conditions have been dicey due to market volatility and uncertainty and a number of companies have in the past withdrawn their listing plans over worries about whether they will be able to complete their public offering at the desired valuation,” he said.
“The timing and structuring of such transactions in the market is therefore an art; and often times the windows when conditions are favourable for an IPO are short. I know of several companies that are working in the background in structuring their potential IPOs with plans to move fast when market conditions are favourable. What this tells us is that taking a company public is a process,” said Dyirakumunda.
He said companies planning IPOs were now faced with tougher questions from investors and regulators alike and the days of high multiple valuations were over.
Investors have also become more selective with high expectations about the quality of corporate governance, business models, risk factors and senior management ability.
Last month, TN Holdings Limited, now Lifestyle Holdings Limited, delisted from ZSE, weakening investor confidence. International investors have been citing high sovereign risk as the major hindrance to invest in Zimbabwe.
Lifestyle Holdings shareholders voted in favour of a scheme of arrangement which saw them getting shares in a Mauritius-based company, with Lifestyle delisting from the ZSE.
Lifestyle acting chairperson, Rugare Chidembo, said the scheme was meant to enable the business to access international funding from investors concerned about Zimbabwe’s country risk.
Economist and investment analyst, Lance Mambondiani, said the lack of listings was indicative of the general poor economic conditions.
He said most companies were struggling with viability due to a recurrent liquidity crisis.
“Macroeconomic fundamentals are unstable and the policy environment has been externalised. In a dollarised environment, the major sources of new money are exports, foreign direct investments and private investment inflows,” he said.
Mambondiani said the performance of all these sources had been abysmal. He said banks were struggling to lend so it followed that capital markets such as the ZSE would also stagnate.
“It explains why companies such as Lifestyle Holdings are seeking to list elsewhere because the market is dry,” he said
“Improving the conditions will take time; it is dependent on what happens with the economy after the elections. Investments are largely about perception. We will be able to attract new money to the local bourse after the elections because presumably sovereign risk would reduce,” Mambondiani said.