Capital markets are for the long haul

Zimbabwe Stock Exchange:special correspondent

THE Zimbabwe Stock Exchange (ZSE), formerly Rhodesia Stock Exchange, having been established around 1894, has managed to recover from two world wars, the Unilateral Declaration of Independence sanctions of the 1960s, the 1997 Black Friday and the 2007-2008 hyperinflation.

This in essence has been due to the resilience of the underlying security issuers, whose diversity has enabled the ZSE to remain an avenue for long term capital creation and investment destination.

The profile and stature of the ZSE has, as expected, changed over the years, but today the 61 currently listed entities represent the breadth of the Zimbabwean economy from primary extraction industries to service firms.

The 2020 Quoted Companies Survey has been part of the capital markets for 23 years and has provided an independent gauge on how the ZSE issuers have performed over those years. Whilst the ZSE takes pride in all its issuers, it recognises the independent analysis that seeks to reward those that are deemed outperformers. To the ZSE, all issuers are winners as they all have taken the bold step to make their affairs public by listing.

Listing is a hallmark of the intent to abide by the highest corporate governance standards and the willingness to be publicly scrutinised both at business and personal level.

Listing is also a testament to focus on sustainable business decisions and the consideration of all stakeholder concerns. Listing is not an easy route when you have to expose yourself to competition and public scrutiny. To all the issuers, the ZSE deems you our ambassadors and economic heroes.

This year’s theme of the Quoted Companies Survey “Soaring Above Turmoil: Business Post-Covid-19”, resonates with the history of our capital markets, which have gone through tumultuous periods, but still remain strong. Covid-19 needs no introduction as its impact is being felt both at business and personal level.

Not only has it hit the local economy, it has also led to bankruptcies and job losses in the most advanced economies. Focusing on the negative impact of Covid-19 will, however, not make it go away. What are required are survival strategies to overcome the tempest.

It is evident business models have to change and adaptability and flexibility become valuable in times like these. Investment in technology and a healthy workforce has proven to be valuable. Strong balance sheets and access to finance have also proven to be needful when distress hits.

Central governments have had to dole out trillions of dollars as rescue packages to prevent distressed firms from sinking into the oblivion. What has been the impact of Covid-19 on capital markets may be the question? The Association for Financial Markets in Europe (AFME) report on the initial impact of Covid-19 on European capital markets indicate that European markets have continued to intermediate market liquidity and facilitate risk management for corporates and investors. Increased volatility has, however, reduced initial public offerings and the increased central bank support has disrupted liquidity in securitised assets.

A webinar hosted by Making Finance Work for Africa (MFW4A), focusing on the impact of Covid-19 on African capital markets, revealed that most African markets had witnessed dropping prices, but increased domestic participation in the secondary market.

The reports from AFME and MFW4A indicate that despite the negative impact of Covid-19 on capital markets, there have been positive developments as well: the increased secondary market trading and the increased participation by domestic investors.

Going forward, corporations can take advantage of the increased secondary market trading and increased local investor participation to raise debt or equity capital through rights issues.

According to AFME, a total of €10,3 billion (US$12,157 billion) in secondary offerings was issued on European exchanges between January and April 14, 2020, just below €11 billion (US$12,977 billion) issued in the same period of 2019.

The main use of proceeds for the secondary equity offerings was for repayment of debt and general corporate purposes (including working capital). Close inspection of companies’ offering documentation reveals that about €2,5bn (US$ 2,950 billion) of the €5,6 billion(US$6,610 billion) capital raised between March-April 2020 was explicitly attributed to Covid-19 use as a need to raise cash in the current market environment, for debt repayment, working capital or to explore potential opportunistic mergers and acquisitions transactions.

The MFW4A webinar also indicated that there was increased appetite for alternative securities such as Gold ETFs and debt securities during the period.

Listed companies can also still reward shareholders through non-cash strategies such as scrip dividend or bonus issues. Such strategies help companies to preserve cash and at the same time motivate investors.

In conclusion, Covid-19 has been disruptive and businesses will need to be agile in their response.

Capital markets have been impacted negatively, but remain active and useful as an avenue for capital raising. The ZSE has taken advantage of the period to work on broadening its services, including the launch of the Receivables Marketplace, an SME receivables financing platform.

ZSE has also been working hard on establishing a hard currency exchange, the Victoria Falls Stock Exchange (VFEX) to ensure that corporations and other entities can raise capital in hard currency.

VFEX has already received important incentives such as the ability for issuers to keep capital in offshore accounts, lower dividend tax on foreign investors and exemption from capital gains withholding tax for investors.

This article was published in the Zimbabwe Independent 2020 Quoted Companies Survey magazine. Read more in the Quoted Companies Survey supplement from pages B1 to B8. For any further information, you can e-mail: info@zse.co.zw or visit: www.zse.co.zw

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