HomeLocal NewsZSE-listed firms in trouble over shares

ZSE-listed firms in trouble over shares

KUDZAI KUWAZA
SIX business tycoons and one institutional investor controlling shareholdings across Zimbabwe Stock Exchange (ZSE)-listed firms have filed a High Court suit requesting it to overturn fresh directives made by capital markets regulators regarding the operation of central securities depositories (CSDs).

CSDs are specialised financial services firms that keep securities like shares on behalf of investors, allowing ownership to be easily transferred through a book entry rather than transfer of physical certificates.

This allows brokers and financial companies to hold their securities in one location where they can be available for clearing and settlement, mostly electronically.

For about a year, in September 2014, Chengetedzai Depository Company Limited was a near monopoly in the lucrative CSDs space until the Securities and Exchange Commission of Zimbabwe (SecZim) gave the ZSE the greenlight to set up its own CSD in 2015.

The move “marked the onset of competition in the capital markets”, a multi-trillion-dollar sector that houses huge fortunes for individuals and the institutional investors.

Market capitalisation for the ZSE alone was yesterday estimated at about ZW$1,451 trillion, which translates to about US$13,74 billion.

High Court papers indicated that following a 2015 SecZim directive for the ZSE and Chengetedzai to activate the migration of registers between their CSDs, there has been resistance by some investors, including applicants to the case.

They have argued that they held contractual agreements with Chengetedzai to handle their shares in at least 10 listed firms.

The firms include the conglomerates, Axia Corporation and Art Corporation, Dairibord Holdings, General Belting Holdings, Innscor Africa Limited, Masimba Holdings, Seed CO, Simbisa Brands, Truworths and Zimplow.

These have all been dragged to the court as fourth, fifth, sixth, seventh, eighth, ninth, tenth, eleventh, twelfth and thirteenth respondents, respectively.

Montgomery Holdings and six individual investors, acting as applicants in the case, want the SecZim directive to be stayed pending a determination of its legal validity by the High Court.

They are also arguing that SecZim violated the Companies and Other Business Entities Act in its directive.

“It (the directive) is illegal and violates the applicants’ freedom to contract with whomever they want and their freedom of association,” the applicants argued in their papers filed on Friday last week. “More specifically (it is illegal) in that the applicants have entered into contracts with the third respondent (Chengetedzai) for the purposes of the custody, settlement and all related transactions of their shares issued by the fourth and thirteenth respondents (the ZSE-listed companies).

“This was their sole choice. The directive empowers the boards of the fourth to the thirteenth respondents to decide on the termination of contracts with (Chengetedzai) and enter into contracts with another CSD which is primarily the one operated by the second respondent (ZSE represented by Addington Chinake of Kantor and Immerman). This is unlawful.

“The directive effectively tramples on investors’ property rights, violates freedom of contract and association and breaches the law. Instead of promoting higher levels of investor confidence, encouraging free, fair and orderly capital markets, the first respondent’s (SecZim’s) directive effectively negates these fundamentals.”

The applicants also argue that shares in the firms remained the property of investors, and none should decide on the migration of the shares without their consent.

The applicants further argue that SecZim’s directive violated Section 3 of the Administrative Justice Act, which compels an administrative authority to act lawfully, reasonably and fairly.

But there was an immediate bite back from some of the 10 listed firms, the regulator and the ZSE. They said the applicants, who had filed an urgent court application, had rushed to the High Court before exhausting internal channels.

“On the merits, the respondent avers that the applicants have no contract with the third respondent. The applicants are merely account holders with the third respondent. The accounts were opened following the decision of the issuers to engage the services of the third respondent (the ZSE),” the respondents argued.

“The contract is actually a tripartite argument with the issuers, the third respondent and transfer secretaries. The directive simply sets out the migration process and does not interfere with any rights as alleged. This is a contrived application to derail the migration processes that have commenced.”

Chengetedzai, however, said it would abide by the court’s decision.

High Court Judge Philda Muzofa, in a ruling delivered last week, struck the matter off the roll of urgent matters saying she could find no reason to have the matter heard on an urgent basis.

“What constitutes urgency is now trite. Two issues stand out for consideration: harm and time. The applicant must show that he is likely to suffer irreparable harm and that any future intervention may not protect the applicant’s interests adequately,” she said in her ruling. “There must be irreparable harm not mere harm that can be resolved even in the future without much prejudice … It is administrative in nature and does not in any way affect the applicants’ investment or the return on investment.”

Justice Muzofa said the applicants had failed to demonstrate urgency in the matter.

“The applicants simply indicate that investors would be impacted. Even if the court would accept the applicants have a valid contract with the third respondent and the directive in its effect interferes with the contract, the applicants have failed to establish urgency.

“It is not stated how they would be prejudiced even if the contract is varied. The applicants do not share with the court the prejudice they will suffer that requires immediate intervention.

“Bearing in mind that the third respondent’s role is purely administrative, the alleged interference with the contract is not prejudicial to the extent of affecting the share value. That has not been alleged at all. It’s a matter of where these shares are kept and the related transactions are recorded,” the judge said.

Justice Muzofa also queried the conduct of one of the applicants, a Mabuzwe, who bought shares in some of the respondent companies after SecZim had issued the disputed directive on October 19 this year.

“The real protagonists in this application are veiled. The founding affidavit leaves a lot to conjecture. The first applicant (Mabuzwe) says the need to act arose on the 19th of October 2021.

“This is when the directive was issued … The averments are patently misleading and as suggested by one of the respondents they are a palpable lie meant to contrive this application. It is not in dispute that the first applicant (Mabuzwe) purchased shares after 19 October.

“More specifically the first applicant acquired shares in the seventh, ninth, tenth and twelfth respondents on 25 October. The shares in the sixth respondent were acquired on 26th October. It follows then that the directive was issued before the first applicant held any shares,” the judge said.

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