Blood on the floor as markets hurt

By Admire Mavolwane

THE new governor of the Reserve Bank’s monetary policy statement has indeed rocked the boat, the first casualty being the stock market which fell a massive 9,39% the day after the pronoun

cements.


While investors exhibited some jitters prior to the statement, many dived for the panic button once it became evident that interest rates were not coming down any time soon and were actually going into positive territory.

The selling has continued, albeit on small volumes, with the industrial index closing on 396 316,03 on Tuesday, representing a decline of 26 544% since December 18.


The index has now almost halved, having declined by 47,48%, from the record high of 754 608 reached on August 28.


Even though the money market is in surplus, wholesale inter-bank rates have remained in excess of 500% per annum, with some institutions quoting rates just below 1 000%.


The explanation however for the apparent contradiction is to be found in the adage “high risk high return” which has seldom been more appropriate. On the back of this situation, the inverse relationship between interest rates and the stock market is likely to continue affecting sentiment towards the latter.


Banking shares in particular could well be affected by the far less tolerant attitude promised by the new governor towards certain unwise or unsound practices in which, he says some institutions have engaged in the recent past.


The sector thus appears likely to be next in line for a good shake down or is shake out? This factor too can be expected to unsettle the market in the days and weeks ahead.


Turning to results, this week we look at Mashonaland Holdings Ltd and its former subsidiary Willdale Ltd, fresh from listing in March this year.


After the demerger of Willdale, in 2002, Mashonaland Holdings was left with rental income from industrial properties as the primary source of revenue.

Thus turnover for the group was down by 65% to $35 million. However, stripping out the brick-maker which was accounted for in 2002 as a discontinued operation reveals an increase in rental income of 116%.


This revenue stream proved to be insufficient to sustain the group’s profitability resulting in an operating loss of $33 million being realised compared with a $48 million profit in the prior year. Net interest receivable more than halved from $80 million to $32 million as the group increased borrowings to fund working capital.


Fair value adjustments of the industrial properties, of $2,5 billion, provided the much-needed boost to the bottom line.


After taking account of a deferred taxation charge of $805 million attributable earnings of $1,8 billion were attained, up 520% on 2002.

Post balance sheet, the group undertook a major restructuring exercise which encompassed, a rights issue which raised $26 billion a change in board and management and a shares for properties swap deal which resulted in the group acquiring a number of upmarket office blocks, a retail complex and land for residential property development.


The rental income from these buildings and the revaluation thereof is expected to bolster the group’s fortunes going forward.


Turnover for Willdale was up 345% to $3,3 billion as strong demand from the urban housing sector in the second half made up for the depressed first half, when incessant late rains and the slow-down in the construction industry affected sales.


Operating profit grew by an impressive 5 729% to $1,3 billion, as operating margins increased by 35 percentage points to 38%, thanks to implementation of appropriate pricing structures and stringent cost and shrinkage controls.


Net interest income of $96 million was received against a charge of $214 million in 2002.


Attributable earnings of $1,1 billion were realized against a $192 million loss in the prior year, not a bad debut performance!


Going forward, it is anticipated that the new state-of-the-art all weather brick making factory and the refurbished dry weather factories will be equal to the task, as demand from urban housing development is expected to remain strong and the commercial construction sector is expected to start picking up.


In other corporate news Zimre published the results of its extraordinary general meeting held on December 19 where shareholders were asked to approve special resolutions changing the name of the group to Southern Union Financial Holdings Ltd and approving the issue of 95 million shares to Africa Resources Ltd, Total Finance and Ukubambana-Kubatana Investments Ltd in exchange for 297 million First Banking Corporation Ltd shares, together with the placement of the remaining unissued shares under the control of the directors.


The name change resolution was passed while the issue of shares to the three parties was not approved.


With the deal to acquire First Bank shares, which gives Southern Union Financial Holdings Ltd a 21,9% stake, having been consummated in September, it is now up to the board to find alternative means of financing the acquisition.


Finhold also published the results of its rights offer to shareholders, which closed on December 19.


Out of the total of 47,78 million shares, 47,14 million shares, representing 98,67% of the offer, were subscribed for.


The underwriters took up the balance.


This should rank as the most successful rights offer this year. The net proceeds of $14,9 billion will be applied towards the recapitalisation of the group, hopefully now making Finhold adequately geared to meet the economic and financial challenges of 2004.

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