Tertrad – The more things change


By Brian K Mugabe

LAST week’s maturities of RBZ Financial Bills, worth a staggering $1,5 trillion, had the effect of dampening money market interest rates significantly much to the joy o

f stock brokers and equity-biased investors who had all been having a rough time of it for much of the year.


The issuance of “Special Treasury Bills” to mop up this liquidity and presumably, then keep rates at the levels then prevailing, did not have the desired effect. This lack of effectiveness arose from the free tradability of the paper and the fact that those institutions that are found short will be able to sell these assets to the central bank at the rate at which they have been issued. This is likely to ensure that rates remain at current levels, certainly in the short term at least.


Given the negative correlation between equity and money market rate movements the local index has thus responded accordingly to the current status quo. This is reminiscent to a large degree of the fall in interest rates that occurred in early 2000 and which, along with hyperinflation, drove the generally upward trend exhibited by the stock market over the past three years.


A look at the week-on-week movement to June 30 shows that the industrial index put on 18% or 103 589 points to close at 693 147 points, its highest level this year and the highest close since November 28 2003. This strong performance translated into a gain for the month of 36%, for the quarter of 99% and for the year of 73%.


Of interest to note is the return to favour of the banks which occupy, in all three time periods, the number one and two positions, with CBZ being dominant. The banks have, as alluded to in previous columns, made a comeback due to the huge margins being enjoyed by them as the spread between borrowing and lending rates remains substantial (some would say criminal!) while those that are managing to access the substantial Productive Sector Funding on behalf of their clients, are guaranteed a fixed margin of 20%. Earnings expectations have thus changed materially for the better while merger and acquisition speculation have further fuelled the positive sentiment.


The bottom five for each time period are more of a mixed bag, in general comprising companies that have, in the various periods, produced below par results or issued bearish cautionary statements regarding financial performances.


What they do show, however, is that there were businesses across all sections of the economy that were caught on the wrong side of the monetary policy pronouncements and the changes that these heralded in the economic landscape.


In a victory for minority shareholders who many a time have been left holding the can, as the decisions of the majority shareholder have sometimes served the latter more than the former, the Tedco board, at an EGM held last week, was persuaded, following representations by various stakeholders to amend the terms of its intended disposal of the operating assets and inventory of manufacturing subsidiary Tedco Industries in a bid to recapitalize what would have been the remaining Tedco retail operation.


Where previously the deal would have seen the aforementioned operating assets and inventory being disposed of to Steinhoff Africa Holdings and A Simba, the investment vehicle of the majority shareholder, the proposed transaction, as amended, will now see the assets being sold to a joint venture company between Steinhoff and Tedco Ltd or Tedco Industries Ltd.


This ensures that Tedco shareholders remain exposed to the manufacturing operation with one of the arguments against the deal, besides valuation concerns, having been why would the major shareholder want to further invest in a business that has no long-term value yet expect the minorities to sell out?