BY TAURAI MANGUDHLA
ALTHOUGH the Zimbabwean government has caved in to market demands for valuation of the two suspended previously dually-traded securities, Old Mutual and PPC, to be valued according to the closing prices of the two stocks on the Johannesburg Stock Exchange (JSE), sentiments that the country is not a good investments destination are rife as the shares are still banned from over-the-counter trading.
The complications arising from suspension of fungibility and trading of the two stocks come as millions in management fees and dividends meant for repatriation to foreign shareholders remain trapped in the country, with corporates having to spend numerous working hours negotiating with authorities.
This has painted Zimbabwe as a hostile investment destination given the history of the fast-track land reform of 2000 where farms were grabbed without respect for property rights. More recently, the indigenisation exercise which forced foreigners to relinquish majority stakes to locals did not do any good.
Zimbabwe has been a bad debtor and owes billions of dollars to international financial institutions and has struggled to come up with a viable repayment plan.
Last week, capital markets regulator, the Securities Exchange Commission of Zimbabwe (SECZ) informed securities market intermediaries that although the Old Mutual and PPC shares were banned from trading on the ZSE, valuation of the stocks could be done using the JSE closing prices.
The two stocks were suspended from trading in June 2020 over allegations of fueling inflation.
At about the same time in 2020, mobile money platforms were briefly disrupted on similar allegations but later resumed normal operations under tight controls and transaction limits.
According to SECZ, the JSE values will be converted at the interbank rate, which is currently trading at about US$1:ZW$84,5 on the official foreign currency auction system as compared to parallel market rates that have already breached ZW$120 as foreign currency shortages persist.
Research firm Econometer Global Capital (Econometer) said although there has been some welcome movement on the issue, this remains a case of trapped investment in the absence of permission for the stocks to trade.
“For as long as this stance is taken where the stocks cannot be allowed to trade over the counter, then the message is Zimbabwe is still not open for business. The message which is even worsened by the legacy debt issue is that trapped deposits or trapped investments is the order of the day in Zimbabwe and that is what needs to be solved,” Econometer said.
The research firm also said the case is testimony to government interference in capital markets.
“Of course, there is progress because we can’t accept a scenario where the government has a stake regarding the valuation of markets. It can’t have a say there really and I think this culture, where you see the government hand in the financial market or even in the industry through subsidies and taxes, is quite worrisome. The government has been very active in almost every facet of the economy,” Econometer said.
The firm argued there is a need to allow the stocks over-the-counter trading.
“We need to have over-the-counter trading opened. Without over the counter trading of these stocks, we have just sent a signal to the world that Zimbabwe is a market where the government can tamper with the market; it can dictate the pace of investments without any due respect to the market forces of demand and supply,” added Econometer.
The research company also argued that Old Mutual and PPC could have been, for one reason or another, victimised.
“Generally speaking, it’s a step in the right direction, but the whole fight should be on seeing to it that the stocks are allowed to trade like any other counter. This argument of treating them as culprits in the whole currency bating, is something which is not justified.
“If it was justified, the mobile money platforms should also have been suspended up to now because the allegations were almost uniform unless there is something which the market is not aware of which could be the reason why the mobile money platforms have been allowed to operate while these stocks are somehow impacted,” Econometer noted.
Economist Chenaimoyo Mutambasere said the reasons the stocks were delisted were flawed and unjustified.
This, she said, has a negative effect on the economy.
“That they (PPC and Old Mutual) were fueling inflation because the market used the value of the stocks on LSE and JSE to speculate the exchange was indeed a ridiculous claim and the proof is in the pudding given that inflation still continued [to rise[ after their suspension,” Mutambasere said.
But contrary to Mutambasere’s statement inflation figures have been showing a downward trend since July last year when the annual rate reached a peak of 837,53% before slowing down to 348% in December.
Last week, Zimbabwe National Statistics Agency data showed a continuing downward trend in the inflationary figure, with the rate falling to 194% in April from 240,55% in March.
Matambasere said a fundamental opportunity was missed in the forensic analysis of Old Mutual to speak to the state of the pension industry.
“The state of pensions in Zimbabwe requires a deep dive investigation into the dealings of pension fund holders given the huge disparity between pension contributions and pension benefits, specifically where the former is in US dollars and the latter is in Zimbabwe dollars,” Mutambasere said.
“Investors will welcome the relisting of these stocks as it goes some way in adjusting the information asymmetry in exchange rate differences. Currently, the government hides behind a spurious formal auction rate of US$1:ZW$84,5 which is widely different to the popular parallel market rate currently at US$1:ZW$120.”