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The Dilemma of Public Companies

SOME listed companies in the country may be weighing the costs and benefits of being listed at the moment. It would seem more of a hassle to be a company in the public spotlight, worst still if you are operating in a shrinking economy.

A listing enables a company to raise capital through Initial Public Offerings and raise more capital through rights issues.

Listing also allows the company’s securities to be valued by the market and hence can be used as cash in buying other businesses. In the case of a private company or traditional family owned business, it allows you to sell a portion of your business to other interested investors.

There is also the ego associated with being listed; major shareholders are happy to boast that they own listed companies. Brand awareness is also enhanced, augmenting a company’s corporate standing.

A company will be exposed to a wide-ranging and mounting investor base. Investors in a listed company can be classified into three groups.

The first group comprises the major shareholders who are/were promoters of the business. Second class citizens of the corporate world would be those in the fiduciary capacity like pension funds and asset management companies. Last, and possibly the least, are individuals.

The interests and expectations of each of the three classes are different. For instance when Renaissance Financial Holdings became the major shareholder in FML its main interest, it would appear from subsequent events, was to rename the company and merge the group with RFHL before taking over the office park.

Pension funds expected a new leadership to drive the group forward and take its major competitor Old Mutual head on. The individuals were expecting that FML would be turned into a blue chip.

Unfortunately the divergence of expectations is not moderated by some of the actions of major shareholders. At the same time the Zimbabwean environment is not as good as it could be in as far as a listing adding value to a company. Thus many major shareholders have to enumerate the blessing arising out of being listed.

Then there are instances where the interests of minority shareholders of fairness in transactions are in opposition to the interests of major shareholders in certain transactions. A question of the means not justifying the ends as far as the minority shareholders are concerned, and the end justifying the means in respect of the major shareholders.

A good example was the recent Econet transaction where minority shareholders were querying the price tag of US$94m for vendor finance which they reckoned was too high. That the major shareholder, EWG, was the seller of the equipment raised more eyebrows. Would the events that unfolded at the EGM have been avoided if it had been a private company?

Raising more capital through rights issues has proved to be an impossible task in the current environment. Even foreign shareholders are sceptical about recapitalising their Zimbabwean operations because of the huge country risk. There is also the global financial crisis to think about.

ABC Holdings suspended its rights offer as it became apparent that many would not follow their rights as the global credit squeeze worsened. The company wanted to raise US$150m, an amount much higher than its market value. Maybe the deal could have been done had ABC not been listed.

There are also additional obligations to governing bodies and higher levels of reporting requirements which are costly. There is increased accountability to shareholders which can sometimes be stressful. Locally, most listed companies are doing away with full page annual reports, replacing them with small publications or posting the documents on their websites. A full-page advert in the paper costs about US$1 000.

Some companies have ceased to communicate with shareholders altogether, or no longer bother to provide them with any meaningful operational information. There is little disclosure in some listed entities with the notable ones being Tedco, Caps, Radar and Border. Analysts actually battle to find information on some of these companies.

Lastly, according to press reports, TA Holdings, the major shareholder in Zimnat is contemplating buying out minorities with an intention to delist it. The argument for this action is allegedly that the insurance concern needed to be recapitalized in order to increase its capacity to underwrite more business.

In the good old days, the easier way to recapitalise would have been through a rights issue. Obviously the decision to de-list Zimnat may well mean that TA sees no financial benefit in Zimnat remaining a listed entity.

Going forward, there is the possibility that circumstance might force some companies to de-list. If a company cannot raise capital which, besides the publicity, is the main reason it listed in the first place, then why go through all the hassles of pleasing a wide range of shareholders and regulators in a challenging and difficult operating environment.

With the economy opening up listed companies are now under increasing pressure to deliver with some who were used to less or no shareholder aggression not taking it lightly.


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