HomeBusiness DigestConfusion reigns on currency reforms' impact on shares

Confusion reigns on currency reforms’ impact on shares

Dumisani Ndlela

COMPANY consultants and corporate secretaries were this week grappling with the impact of central bank measures re-denominating the local currency as it

emerged that the nominal value of issued shares could fall below levels prescribed by law.

Several firms, including top chartered accountants Ernst & Young’s secretarial services department, have written to the Registrar of Companies seeking clarification on the issue.

There are fears that should the nominal value of share capital be re-denominated in line with recent measures by the central bank, the nominal share price could fall to less than a cent for most companies.

The least currency denomination in the country is a cent.

“It looks like when the central bank put in place the new measures, they only considered the effect on consumable goods and money paper but it is now evident that this extends to anything that forms part of the valuation process,” an analyst with a transfer secretary told businessdigest.

Stockbrokers said they had been inundated with enquiries from foreign investors fearing the new measures could have an impact on their local portfolio of shares.

Zimbabwe’s central bank governor Gideon Gono lopped three zeros from the country’s currency, ordering that old bearer cheques be replaced by re-denominated notes and the old family of bearer cheques cease to be legal tender by Monday next week.

The move has forced companies to re-price their securities, but sources indicated this week that a problem had emerged in the revaluation of the nominal value of securities as this was re-pricing issued share capital to non-existent currency denominations.

While officials at the Registrar of Companies said the department would not accept subscription for shares at a “nominal value of less than a cent or a fraction of a cent”, a statutory instrument released by the central bank said companies could do so.

The central bank said one dollar of the revalued currency would be equivalent to one hundred cents, corresponding to two decimal places.

Whenever the decimal part resulting from the conversion of old bearer cheques to the revalued currency or new bearer cheques contained more than two digits, and the third decimal digit resulting from the conversion was equal to or above five, the central bank said the effect of rounding off would be that the second decimal digit remained the same.

“Where the nominal value of any security is denominated in units of less than four dollars and ninety cents of the old currency system, the nominal value shall be expressed in fractions of a cent of the new currency,” reads part of statutory instrument 199 of 2006.

Where the nominal value of a share was $5 under the old currency system, the value would now be 0,005 or 1 cent when rounded off.

However, for prices less than $5 under the old currency system, the price cannot be rounded off to a cent when converted to the new currency system.

An accounting consultant spoken to by businessdigest on the issue said there was no reason to revalue the nominal price of shares as these had historically remained unaffected by inflation.

“The capital of companies have remained unaffected by inflation. If companies have to revalue the nominal value of their capital, they will have to seek shareholder approval first,” the consultant said.

The nominal value of shares is used in the valuation of share capital on the balance sheet.

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