APART from the listing of exchange traded funds (ETFs), bonds and unbundled entities, the Zimbabwe Stock Exchange (ZSE) has not seen a privately-owned company transition to become a listed entity in the past six years.
In fact, Getbucks Microfinance Bank was the last company to do so in 2016, when the exchange and the economy were still dollarised. It now seems very clear that the company will voluntarily delist from the bourse.
Any investment banker or stock broker will tell you that one of the toughest questions you get from company promoters when you try to convince them to list on an exchange in Zimbabwe is, what is the benefit of listing on an exchange that trades in a currency that is different from the capital I need to raise?
To be fair, there is now a foreign currency-denominated Victoria Falls Stock Exchange (VFEX) and there are also companies that are raising United States dollars (US$) on a Zimbabwe dollar (ZW$)-denominated exchange, but nevertheless the number of companies considering listing is not encouraging.
In a circular distributed to shareholders, the board of directors of Getbucks Microfinance Bank expressed their intention to delist the company once they get shareholder approval.
Their view was supported by the fact that, based on the current operating environment in Zimbabwe, the listing is incurring more costs than benefits.
The circular went on to explain that the exchange is valuing the company at 29 times its book value of equity, and this higher market capitalisation has attracted more levies and compliance costs.
The current shareholder mix of the bank is such that 99,97% is owned by the top 20 shareholders. The counter is also highly illiquid with only 0,006% of the shares traded on an annual basis.
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All these factors contributed to the board’s decision to terminate the company’s listing voluntarily. This also comes after the company had initially indicated its intentions to migrate to the US dollar-denominated exchange, which later failed to see the light of day.
Primarily a company lists on any stock exchange to raise capital to undertake a project of some sort. On its road to the market, the company usually gets large institutional investors who want to buy part of the company’s shares in a private placement.
The company usually also finds someone who guarantees to buy the shares in the event that the company fails to offload the shares when it eventually lists, and this is called an underwritten offering.
In markets that are very deep, it is relatively easier for a good quality company to raise this funding by listing on an exchange. If it happens that even after the listing, the same company finds itself in need of additional capital, it can go back to its existing shareholders and ask them for additional capital in what is called a rights offering.
With the move to delist, it is now clear that a rights issue at current valuations is not an option, at least on the ZSE for the microfinance bank given the current circumstances.
The evils of an inefficient market can be witnessed by the fact that a company’s share price can be artificially pumped by market participants to such an extent that it becomes overvalued.
A temptation to think that it is a good thing for shareholders, immediately arises until you read the finer prints where the board talks about the certain levies associated with being a big company.
If you are a smaller counter, with unrealistic valuations those levies and cost of compliance will hurt you and, in this case, they have contributed to Getbucks Microfinance Bank’s decision to delist.
In the 2022 Monetary Policy Statement (MPS), the Reserve Bank of Zimbabwe listed Getbucks Microfinance Bank as one of the banks that were not compliant with the US$5 million core capital requirement for Deposit-taking Microfinance Institutions (DTMFIs).
The MPS also highlighted that the bank would comply by undertaking a rights issue exercise to recapitalise. As of February 2023, the bank was still undercapitalised with a capitalisation of US$0,64 million, which gets one to also think that perhaps the delisting is a move to secure external investors who can capitalise the bank.
Delisting of a counter, in my opinion, is a vote of no confidence in our capital markets, especially when the company is continuing to operate but realises that the cost of listing outweighs the benefits.
Getbucks might inspire other counters to evaluate and reconsider the position with regards to their listing, and who knows it might have a contagion effect. I opine that all capital market participants, including the listed entity, the exchange and the regulator should find a way to encourage listed companies to remain on the bourse and realise the value of their listing.
Minority shareholders in Getbucks will in my opinion be the biggest losers at the end of the day, they will sell their stake over the counter but most likely at a discount to current market prices.
- Hozheri is an investment analyst with an interest in sharing opinions on capital markets performance, the economy and international trade, among other areas. He holds a B. Com in Finance and is progressing well with the CFA programme. — 0784 707 653 and Rufaro Hozheri is his username for all social media platforms.