PLANS to establish the Zimbabwe Comprehensive Equity Exchange (ZCEE), a second stock exchange to cater for state enterprises, could face resistance from stakeholders because it might come with reduced listing requirements thereby compromising the credibility of the exchange, a cabinet minister has revealed.
According to State Enterprises and Parastatals minister Gorden Moyo, the preferred model of the proposed exchange would be that of China Beijing Equity Exchange (CBEX).
Moyo said the prime motive is to allow struggling parastatals perceived by most financial institutions –– both local and foreign –– to have high credit risk profile to afford them a chance to access funds.
“State-owned Enterprises and Parastatals (SEPs) have, over the years, been plagued by interconnected challenges chief among these challenges was failure by these entities to secure sufficient funds from financial institutions, government and capital markets to sustain their operational requirements and recapitalisation needs thereby failing to deliver goods and services to the satisfaction of public demand,” he said.
Moyo told businessdigest that once set up, ZCEE is expected to become one of the most important source of funds for enterprises and other market participants who need money for capital expenditure.
“The exchange will trade in ‘securities assets’ with a broad definition which includes securitised credit balances, bonds and derivatives,” said Moyo.
The exchange will be registered under the Securities Commission of Zimbabwe in line with Securities Act Charpter 24.25 promulgated in 2004 and operationalised in 2008.
Moyo said at present most state enterprises fall short of meeting listing requirements on the main stock exchange.
“Most SEPs have huge debt which might result in delayed declared dividends. Some might take two to three years before any dividends are declared. The requirement that compels companies to forecast earnings and dividend for them to list on the ZSE reduces the chances of reviving SEPs through getting listed on the bourse,” Moyo said.
Government, he says, may take a decision not to offload at least 30% shares to the public consistent with its policy objectives and this might be inconsistent with ZSE which requires issuing a minimum of 30% shares to the public.
However, parastatals have been struggling to compile audited financials for close to five years and stakeholders might not buy-in into the proposal.
“Relaxed listing requirements for the SEPs may reduce credibility of the equity exchange. Relaxing of listing qualifications scare away investors and will therefore result in low investors’ participation. However, this challenge can be countered by ensuring no compromise on key fundamentals of the Exchange,” said the minister.
“When, a SEP or SME wants to recapitalise it would sell equity through an initial public offer or seasonal issue or bonds to the public, which will be then traded on the Exchange. The issued bonds and equity can then be easily traded on the ZCEE that is the secondary trading. In this regard equity issued by SEPs will become one of the flexible funding options that will be made possible by the establishment of the Exchange.”