HomeBusiness DigestFML price movement: probably a first of its kind

FML price movement: probably a first of its kind

By Admire Mavolwane

IS it mere coincidence, a collusion of some sort, or is it that somebody somewhere wants to curry favour with the all-powerful chefs?

Helvetica, sans-serif”>Otherwise, how does one explain the fact that immediately after the revision of the inflation targets the upward rigidity in the CPI suddenly seems to have given way? The latest CPI figures for May 2005 show a month-on-month increase of 13,1% which is accounted for mainly by a 45% increase in the rent, rates and domestic power component of the basket.

Given the impact of the current clean-up exercise, June should show a huge jump in rent and rates, as increase in demand has pushed the price of rentals up. A lot has been said about home owners being urged not to increase their rentals but then, this is merely another case of the authorities attempting the economic equivalent of putting the toothpaste back into the tube by trying to defy the logic of market forces.

The year-on-year figure reflects an increase of 15,3 percentage points on the April inflation rate from 129,1% to 144,4%. The biggest push on the annual inflation rate continues to come from the non-food component, which rose by 160,6% whilst that of food was up to 118,7%. It remains to be seen whether the May hike in interest rates will be effective in reining in the inflationary pressures that have been building up since January.

The rate spike whilst meant to control inflation and burst the price bubble, as well as temper inflationary speculative activities on the ZSE, has an insidious flip side which is what does it mean for the cost of government’s domestic borrowings. Already, the debt has grown by 261% since the beginning of the year and is currently $10,1 trillion. For how long will the government be able to borrow at 150%?

It appears that the publication of the May inflation rate figure nudged stock market investors back to life. All of a sudden the spell cast by the good governor has been broken, and investors released that prices are allowed to rise after all. If an increase in the inflation rate figures which, contrary to all the evidence on the ground, appeared to have been suppressed was let go, then why not share prices? Since the June 16, the industrial index has gained 17,42% or 411,614,14 points and is back above the 2,7 million mark. The next hurdle, which is the 3 million level, is now firmly in sight.

It is deal time again! TA was the first to come out into the open, unveiling its intention to acquire AIG Zimbabwe and subsequently merge it with Zimnat Lion. The first phase involves the acquisition of the entire issued share capital of AIG Zimbabwe, through a share swap. TA will issue 27 005 771 non-redeemable, non-cumulative, participating and convertible preference shares to the vendors of AIG, American International Underwriters Overseas Limited. In addition the preference shares will have veto powers in the event of a number of specified events. The second phase involves the purchase by Zimnat Lion of AIG Zimbabwe from TA, to be funded by the issuance of 1 124 404 201 shares, representing 46% of the current shares in issue and 13% of the post transaction scenario. This brings TA shareholding in Zimnat up to 85% from the current 72%.

The proforma statements included in the circular indicate that in terms of Gross Premium Income written, AIG Zimbabwe is ranked number 6 whilst Zimnat is second with the pole position belonging to listed entity Nicoz-Diamond. However, when it comes to the crux of the matter, being that of creating wealth for shareholders through profits, the targeted company wins hands down: in 2004, AIG achieved $13,8 billion compared with Zimnat’s paltry $8,7 billion. The two companies have two contrasting business models – AIG has over the past three years managed its core risk underwriting business effectively and thus has consistently recorded underwriting profits whilst Zimnat has had to depend on investment income.

Whether these management skills will effectively combine to form a formidable team which will deliver both enhanced underwriting profits and superior investment income performance, only time will tell. Obviously, as shareholders, we would have preferred the AIG Zimbabwe brand to the Zimnat Lion one for the new entity but, because of other legal constraints, we have to do with the current upright lion logo.

Cairns and Apex also published details of their capital raising exercises aimed at raising a combined $47,3 billion gross of expenses through rights offers. Apex is looking to raise $15,7 billion by offering for subscription 209 526 948 shares on the basis of one new share for every 1,25 shares already held at a price of $75 per share. $10 billion would be utilised to retire the group’s debt whilst $4,1 billion would be applied towards beefing up working capital. The balance expended on meeting the expenses of the various experts roped in to assist with the transaction.

Chips and snacks maker, Cairns, intends to raise $31,6 billion of which $10,1 billion will be used to upgrade the Lakker Nax production line, $10,9 billion to replace old plant and machinery whilst the remainder will be used to fund working capital commitments. In total 22,5 million shares will be offered at a subscription price of $1 400 per share which is a discount of some 21% to the current trading price of $1 700. The new scrip is being issued on the basis of 1 new share for every six already held.

Lastly First Mutual, to borrow from the Herald, “bounced back on the bourse” on Tuesday during second call-over closing at $34 per share. Its performance, share price wise, since re-listing has been spellbinding to say the least and has confounded most analysts. The counter has rallied to 258,82% over the last two days to close at $122 yesterday. The expected sell off by shareholders who were stuck in the counter for approximately 11 months, has not happened. On the contrary, it appears that there exists a mysterious buyer somewhere who might have been lurking in the shadows and is snapping up every share in sight.

It is debatable whether these levels are sustainable or not, but experience or wisdom gained from NMB, which peaked at $800 in February and is now trading at $320 seems to suggest that, well may be not!

Recent Posts

Stories you will enjoy

Recommended reading

You have successfully subscribed to the newsletter

There was an error while trying to send your request. Please try again.

NewsDay Zimbabwe will use the information you provide on this form to be in touch with you and to provide updates and marketing.