Powerspeed, the company that owns Electrosales, leaves the Zimbabwe Stock Exchange (ZSE) on Friday after delivering a few home truths to both the bourse and the government.
Shareholders voted at an EGM on Monday to take the company off the ZSE, a decision the company said was necessary because the benefits of listing no longer match the costs.
It is a move that should cause some self-reflection at the ZSE, which has suffered a series of delistings this year. The reasons for companies leaving the bourse have been varied, from the acquisition of Falgold to consolidation of related entities such as Dawn Properties and African Sun as well as Zimre Property Investments.
However, it is Powerspeed’s reasons that should get ZSE and government authorities sitting up to listen.
Firstly, Powerspeed says being on the ZSE costs too much money and time.
“The Board of Directors of Powerspeed are of the view that in the current environment in Zimbabwe, a listing on the ZSE has very little benefit and considerable costs,” Powerspeed said in a notice to shareholders ahead of the EGM.
The need to report quarterly brings with it legal and accounting costs. Added to this are various regulatory requirements, such as annual compliance certificates, letters of representation, plus posting results online and on the ZSE portal.
Powerspeed: raising shareholders
Secondly, the whole point of listing on the stock exchange is to raise capital from investors. This is not happening, Powerseed says.
“While one of the often-cited benefits of a stock exchange listing is the ability to easily raise new capital, this is clearly not the case for Powerspeed. Foreign investors previously active on the ZSE have seen significant real losses in the last 18 months following currency weakness and, more importantly, an inability to remit proceeds on disinvestment. This unprecedented crisis is likely to remain an obstacle to attracting new capital through the ZSE for the foreseeable future,” the company says.
Companies have historically raised additional money from shareholders through rights issues, where they ask investors to buy additional shares in the company. These have dried up over the years.
When Edgars held a rights issue to raise Z$70 million in May, 53% of shareholders responded. The remainder of the stock was taken up by underwriter Annunaki, a vehicle of Edgars’ majority shareholder SSCG.
“Is there any strategic logic for an issuer to list on the ZSE only to raise capital in Zim dollars?” analysts Morgan & Co wrote in an investor note in October, commenting on delistings.
Even if Powerspeed were to make a call for new capital, the company would need to go through many steps, all of them costing money. This includes producing circulars to shareholders.
“These circulars require input from professional advisors, the production of hyper-inflation and pro-forma accounts, and carry a production and distribution cost. The ZSE also levies charges for inspection of such circulars. While the best practice stance of the ZSE is understood, it is a detriment to efficient capital raising for a small, illiquid company such a Powerspeed.”
Powerspeed believes the market has undervalued its worth.
“While Powerspeed has been able to maintain its balance sheet in real terms, the ZSE pricing has not matched this as the market tends to focus on historic price-earnings ratios rather than ongoing asset values.”
Powerspeed listed on ZSE in July 2000 by way of a dividend-in-specie from Mashonaland Holdings. Once a light engineering business producing electrical goods, Powerspeed’s business is now made up mostly of Electrosales, which has 19 retail stores.
As at Monday, Powerspeed stock, at Z$1.95, was up by 875% since the start of the year.
For ZSE, disclosure, such as quarterly reporting and detailed circulars to shareholders, are not unique to Zimbabwe. The rules are meant to protect shareholders, and they match global standards.
“The demands for increased disclosures are not meant to unnecessarily burden issuers but a response to an environment where investors demand more information before they invest,” according to Anymore Taruvinga, head of business development at ZSE.
While the economy has discouraged new listings, he says, the ZSE remains relevant for investors and companies alike.
Stock market authorities have had a tough year. The market was closed on June 29, for a month, after the government accused the ZSE and mobile money companies of being platforms used to manipulate the currency. The move further weakened already fragile investor sentiment, and drew criticism from leading investment funds and analysts.