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‘Liquidity, politics restrain ZSE surge’

WHEN ZSE CEO Emmanuel Munyukwi said three new counters could list before the end of the year, some analysts and critics said it was a tactic to stimulate a shares rebound on the stock market during the last quarter of the year.

Interest to list among local and foreign investors had somewhat slowed down with the only listings on the ZSE this year being reverse listings.
First it was TNFH Ltd reverse-listing Tedco Ltd earlier in the year and then Interfin’s reverse listing of CFX Bank.
Munyukwi said although there has been interest in floating shares on the bourse among foreigners, enquiries have not translated into a single IPO.
“I can safely confirm that three counters, Padenga, Kingdom Financial Holdings and the other one I cannot disclose at the moment, will be listing and this is positive news as we move towards ensuring that the local market rebounds,” said Munyukwi.
Analysts believe the “other” company is LonZim, whose holding company — Lonrho –– announced it had raised £4,987 million (US$7,862 million) for working capital from a private placement of 17 813 944 new ordinary shares with new and existing institutions and shareholders at a price of 28 pence per share.
The money will be ploughed into its existing operations in Zimbabwe where it plans to raise a further US$5 million for capital expenditure through a rights issue.
On Wednesday, it was reported that Canadian-based resource firm Whetstone Minerals was seeking a secondary listing on the local bourse before the end of the year.
True to his word, on Monday Munyukwi popped champagne corks for the third time this year when Padenga Holdings listed this week.
Padenga listed at US$5c as more than two million shares worth US$138 000 changed hands.
The company emerged from a decision by Innscor Africa to unbundle its crocodile skins division, Niloticus.
Innscor has transferred the assets and liabilities of the division to Padenga in exchange for 541 593 440 issued shares in the listed firm and thereafter distribute the shares to shareholders of Innscor through a dividend in specie.
Officially launching the company, Padenga CEO Gary Sharp said everything the company does was inspired to achieve a standard of excellence in every facet of their business.
Sharp said: “I am extremely optimistic about the opportunities that the listing brings us in terms of our intentions to grow the business and pursue related ventures using the experience, skills and IP we have developed locally.
“We are now producing a size and quality of skin that commands premium prices and this largely separates us from the level of the market that is impacted by global market trends and fluctuating skin prices. We are predicting sustained revenue and profit growth over the foreseeable future and have every confidence in achieving these results.”
The crocodile firm, with three farms in Kariba, currently supplies about 33% of the world’s demand for large, high quality crocodile skins. The company also supplies crocodile meat to Asian countries.
Innscor said the rationale for the unbundling and separate listing of the crocodile skins and meat processor was aimed at streamlining its operations.
The business reported revenue of US$11,78 million for the financial year ended June 30 2010, with an operating profit of US$51 835 before interest and fair value adjustments, against revenue of US$10,22 million.
The global financial crisis has had a negative impact on the international exotic skins market as both demand and prices declined.
Subsequently, the company had to de-stock, which resulted in the business incurring a US$1,04 million fair value loss during the financial year.
Going  forward, economist Brains Muchemwa told businessdigest on Monday that stock price movements like any other commodity prices would be determined by economy-wide liquidity levels.
“The liquidity crunch in Zimbabwe has subdued the upward movement of the ZSE. Therefore the fortunes of the ZSE, from a liquidity dependence perspective, hinge on the ability of the economy to generate more liquidity via exports, lines of credit and the level of foreign participation on the bourse,” he said.
He said although the general perception was that the majority of stocks on ZSE are largely trading at a discount, the liquidity crunch, uneasiness on the political front and indeed the debt-infested corporate balance sheets would continue to restrain significant surge in stock prices.
“Shrewd investors prefer businesses that generate strong cash-flows, the reason why therefore the argument that most companies on the ZSE such as ZPI and African Sun are trading below their replacement costs is difficult to defend and subscribe to,” Muchemwa said. “Counters exhibiting strong cash-flows and decreasing current and potential gearing levels are what investors will most pocket on the market, and these will be the value drivers of the ZSE going forward.”
Economist David Mupamhadzi told businessdigest on Monday that the performance of the ZSE will continue to be driven by the performance of the economy, and the expected strong performance of most key sectors of the economy in 2011 was good news for the ZSE.
“However, political developments will also play a big role in influencing the performance of the ZSE. Reports of an election in 2011, could force a number of investors to adopt a wait and see attitude,” he said.
“Furthermore, depending on the prevailing political conditions, especially linked to the constitution, referendum and the much talked about elections, the ZSE could take a serious hammering if there is no peace and stability in the country.”
Presenting the 2011 National budget, Finance minister Tendai Biti said the local bourse had been rather “subdued” for the greater part of the year saying “the revival of the economy coupled with the modest improvements in industrial capacity utilisation has not significantly spurred activity on the Zimbabwe Stock Exchange”.
“Rather negative investor perceptions coupled with persistent liquidity challenges continue to subdue trading on the ZSE over the period to August,” Biti said.
Foreign investors maintained the lead with their participation increasing from an average of 20% in August to about 40% and 50% of total shares in September and October.

Paul Nyakazeya

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