THE financial services sectors has undertaken more rights issues on the Zimbabwe Stock Exchange (ZSE) over the past nine years to ensure that their capita
l levels remain sound despite recording more solid results than other sectors.
A sectoral analysis of rights issues carried out by the ZSE since 1997, made available last week to journalists by ZSE chief executive Emmanuel Munyukwi, showed that a total of $6,2 trillion (revalued) was raised during the nine-year period.
The financial sector accounted for 74% of the amount raised through the rights issues.
There are 12 financial companies listed on the ZSE out of a total number of 78 listed companies.
A rights issue is an offer made by a quoted company to its shareholders to enable them to buy new shares in the company at a discount to the prevailing market price.
Existing shareholders are usually offered shares in proportion to their existing holdings.
For example in a one for five rights issue, a shareholder would be invited to buy one new share for every five shares already held.
The new shares are offered at a discount to the current market price and because of that the rights have a value in themselves and can be separately sold.
The exercise is done to raise capital, as the shares acquired during the rights issue are deemed to have been acquired at the same time as the original shares.
An analyst with a commercial bank said financial counters embarked on rights issues to remain in business.
“The instability in the financial sector was forcing financial institutions to ensure that they had excess cash, in case there was a change in policy which required them to meet certain targets to remain viable,” the analyst said.
Deloitte & Touche chief executive officer for Zimbabwe and Malawi, Tawanda Gumbo, said it was puzzling that financial institutions were making more money than other sectors but continued to embark on right offers.
“Financial companies are making profits, but have the biggest number of companies embarking on rights offers to raise additional cash,” Gumbo said last week.
Agri-processing and industrial companies accounted for 20% and 4% of rights issues undertaken during the nine-year period respectively, while the insurance and tourism sectors accounted for 1% of the rights issues undertaken during the period.
CFX Financial Services raised the biggest amount through a rights issue amounting to $1,8 billion, followed by Kingdom Bank which raised $1,5 billion.