‘Zimbabwe Stock Exchange counters deeply discounted’

SHARES on the Zimbabwe Stock Exchange are deply discounted, Reneissance Capital CEO Terence Mukupi (TM) says. Zimbabwe Independent Business Editor Chris Muronzi  (CM) spoke to Mukupe about the company’s plans and operations in the country.

CM: Tell us about Renaissance Capital (RenCap). Where else are you doing business?
TM: We are incorporated in Russia? That is where we started off but we have since spread out to several countries across the globe. We have our head office sitting in Moscow and another centre of excellence in London. In Africa, we are in Zimbabwe, Zambia, South Africa, Ghana, and we are in Nigeria as well.
CM: There were accusations in the United States that RenCap was propping up President Robert Mugabe’s regime through your investments in Zimbabwe? Have you in any way supported government?
TM: In terms of supporting President Robert Mugabe as a person and as an individual, we don’t have any association. In terms of supporting Zanu PF as a party, that is not our line of business. But in terms of supporting Zimbabwe as a country that obviously comes with the territory — we are investment bankers. As a patriotic Zimbabwean, it is well within our rights to carry out any deals that end up being translated as if we are supporting the government but they are for the greater good of the country. I will give you an example, if we were working on a transaction whereby we are propping up the NRZ, a parastatal 100% owned by the government of Zimbabwe, but the benefits that accrue out of resuscitation of the railway system benefits everyone in the country, it might be seen as supporting the government.
CM: How much have you invested in Zimbabwe so far? Are you investing in shares or you are pursuing other investments?
TM: The way RenCap is set up is, we have an arm of Renaissance called RenCap Partners. Through RenCap Partners, we have carried out investments that are proprietary investments; we have shareholding in a listed bank which is common knowledge to most people. We also have got shareholding in private assets. We also have several private assets that we own.  And we are also on the verge of coming up with a property development investment which will be a housing development for the country. Other than that we have the investment banking arm. On the investment banking side, we have been on the forefront in terms of bringing investors into the country. One of the investors that we brought into the country that you are well aware of is the ESSAR Group of Companies that was the winner of the Zisco bid and whom we are advising.  On the equity products group, for the past  years we have been clearly the top-entity as far as brokering deals and bringing investment into the country.
CM: How much have you invested in Zimbabwe?
TM: In terms of our own capital, I am not at liberty to say how much we have put in through the RenCap partners  but all I can say is  we have a sizeable portfolio of assets in Zimbabwe. In terms of the equity products group, the current business that we brought into the country in the short history that we have been in the country, is  well within a billion dollars.
CM: There has been talk of elections with  Mugabe and some of the principals seeking to have elections? Where do you see the economy going?
TM: The way I view Zimbabwe is that we have politicians going in one way, and the businesspeople going the other way. In as far as the business environment is concerned, and in as far as the investors that we are representing are concerned, the mere mentioning that they are going to be elections has not affected our clients because the opportunities available in Zimbabwe will be there before the elections and after the polls. So, in as far as we are concerned, I don’t think it is something people should read too much into from a business point of view.
CM: There has been speculation in the market of Renaissance bidding for Ziscosteel? What is your involvement in Zisco?
TM: I understand there has been some confusion in the market and some press reports that Renaissance Capital is the same as Renaissance Financial Holdings run by Patterson Timba. RenCap and Renaissance Financial Holdings are two different entities. RenCap is the exclusive advisor to Essar on the Zisco bid and that is really our relationship with Essar, In no way are we making any investment in Zisco. At the present moment our relationship with Essar as far as this deal is concerned, is us just coming in as financial advisors.
CM: How has been business for RenCap?
TM: If we are looking on the equities side, there has been an uptake in terms of volume that has been passing through the stock market and would want to believe that we have had quite a huge chunk of the business that has been directed into the country primarily from the foreign investors. Definitely, business has been on the up take and I think that one thing that you have noticed in the last couple of days is that we have seen several blocks running into millions of dollars  and overally, there are a couple of counters that have been on the up. On the investment banking side, it is also clear that there has been much  activity with investors coming into the country. There have been a number of deals that have been announced. You see the rights issues coming to the market. PG is coming to the market. For PG to come to the market, they have made sure there is going to be support for it. As a whole, I would want to believe that this quarter is going to be  much better  for most of the banks.
CM: How has been the interest in Zimbabwe from foreign investors?
TM: The interest has been huge. If I can say in the past three months we have hosted about four billionaires, who are all interested in resources, primarily the mining sector. And what I see is most of the activity and most of the excitement has been concentrated on mining. If you look at most investors coming into the country, most of the time they want to write a US$50 million, US$100 million  and even US$200 million cheque. The only area they are going to be able to write that cheque is in the mining sector. And if you compare Zimbabwe to  neighbouring countries, you will find  for the most part resources there are deep seated. In South Africa, they talk of a gold mine where you dig a shaft that is as long as 12 kms but here you only have to go 15 metres and you get to  the resource. When you look at the mineral wealth we have in Zimbabwe, I don’t think the risk can outweigh the potential in Zimbabwe. For instance, I have a friend who works for one of the large banks in Europe and comes to the DRC to carry out duediligence examinations on  deals. For the most part he goes around in an armed convoy and encounters a very difficult environment. But if you compare the risk in those countries in comparison to Zimbabwe, Zimbabwe is not as risky. If you consider the costs, I don’t think you will find a resource base that has lower than what Zimbabwe offers. You will find that all the major mining companies want to prospect in Zimbabwe and make a presence. I know of potentially two international mining houses that have already made a decision that they want to invest in Zimbabwe. Again, it points to the issue you have raised of the elections and the effect it is going to have in terms of Zimbabwe as an investment destination. It is not going to make a dent, it is going to be miniature.
CM: What is your take on the ZSE? Do you think stocks are undervalued?
TM: I guess when people talk of value they are talking about two things; what people want to pay for an asset and the replacement cost of the asset is. And value can be perceived in terms of  the cash flow  you generate out of the asset. So when you are talking of what people want to pay for an asset, that is value when you are talking of the cash they are generating they are correctly valued. But the replacement and intrinsic value imbedded in these assets I would want to believe is deeply discounted. Take a counter like ZB and its market cap which is under US$15 million and then you look at the group’s asset along second street. It runs into several millions. I am sure it costs over US$30 million to build.
It’s the same story across all counters. I guess one thing that is also common among these counters is that when we went through the hyper-inflation, all these companies  were investing in real estate. Pick any counter, it has got some real estate it’s holding. What is the value of that real estate? It’s not fully captured.
Take Aico and Seedco, look at value of say Seedco and look at the value of Aico. Does it reflect the underlying value of  Aico? It does not. Again, it goes back to the issue of perceived risk in the Zimbabwean market. You don’t have the cash flows to support the demand that should be there for the asset. As a result, you find the assets are deeply discounted. It’s truly without doubt. Pick almost  any counter, it doesn’t reflect the true value.
CM: Even Econet?
TM: Yes.
CM: Does it still have an upside to burn?
TM: It has. I will tell you this; when you look at mobile companies for instance in America, which is a market I was in and that I totally understand, where is  most of their revenue coming from and where is the growth coming from?
The growth is driven by data and that is where the revenue is coming from. When you are looking at the Zimbabwean market, the data market has just started. It has not fully been exploited. Right now they are just providing the basic internet. Wait until they start providing all the add-on features like being able to do the web conferencing.  Being able to provide all the value added services that they can provide on the data platform. Wait until the businesspeople start  using the data business that the Econets and the Telecels are able to provide. I feel they have not even scratched the surface.
There is a lot of growth that is going to come out of those platforms. There is a general misconception that these cellular companies because their core business was voice, it should be voice. Voice is just one aspect of the company. The data business is totally untapped. I want to believe there is still a lot of value in those companies. If you consider the multiples Econet are trading at and compare those multiples with the American companies and Europe, the average revenues per users, there is still value. There is definitely still a lot of value.
CM: Who are you? Where are you coming from?
TM: As a bit of back ground, I was born and bred in Zimbabwe  and went to NUST and did an applied mathematics degree. I worked for Tetrad as an investment analyst. From there, I joined BancABC treasury and stayed at BancABC for 2-3 years.   After BancABC, I went to New York University where I did my MBA. From there, I had a stint in investment banking with the Bank of America and then I joined the Royal Bank of Canada where I was also an investment  banker. I later joined KLI, a private equity firm. After my stint at KLI, I set up my own platform with my partner Chris Showalter called Africa Investor Group.
This was an advisory outfit where we brought investors from the US mainly into Zimbabwe. Eventually we went into negotiations with RenCap where I ended up joining RenCap as CEO. That is where I come from.