By Allen Choruma
THE Zimbabwe Stock Exchange (ZSE) should put its house in order to restore public and investor confidence in the integrity of capital markets in Zimbabwe. This call comes in the wake of the recent debacle over the Econet US$130 million rights issue and other issuer debacles that have preceded it where the ZSE has simply bungled. The image of the ZSE is “in tatters” and needs urgent mending.
The Econet case clearly shows that the ZSE does not learn from its previous mistakes and continues with its un-procedural, aggressive and combative approach towards issuers (listed companies).This course has not taken the ZSE anywhere in the past save to embarrass itself in courts and consequently eroding investor confidence in the ZSE.
The Econet debacle has also shown that all is not well in the ZSE boardroom. The suspension last week of the ZSE chief executive officer (CEO), Alban Chirume, pending investigations, which some market analysts felt was long overdue anyway, shows that there are clear fissures at the ZSE, which can no longer be concealed. The ZSE CEO has been reported as having a “tendency to overrule the regulator (Securities and Exchange Commission Zimbabwe (SECZ) and disregard the ZSE Board directives”.
The ZSE’s ineptitude as illustrated in the Econet rights issue debacle is happening at a time when the country is seeking both local and Foreign Direct Investment (FDI) in our capital markets.
Certainly such actions from the ZSE do not help that cause. It is common knowledge that Investors together with their capital shy away from capital markets that are not well regulated or where they feel that their investments are not secure due to poor regulation.
The ZSE’s internal politics and fights with issuers are simply unwarranted and frustrate listed companies from carrying out expansion projects. This is bluntly sabotage to economic growth.
Econet rights issue
Last week there was drama in the media over the Econet rights issue. Econet is seeking to raise US$130 million from its shareholders to retire its offshore debt. ZSE Board instructed Econet not to proceed with the Extra-ordinary General Meeting (EGM) of shareholders until it (Econet) had clarified certain issues raised by the ZSE. Econet issued a public statement that it would proceed with the EGM notwithstanding the ZSE Board directive to stop it. Econet argued that the ZSE board had no jurisdiction to stop the EGM as it had received prior approval from the ZSE through a letter(it published in the media) signed by Chirume.
The ZSE board, however, argued that the approval was un-procedural and had not been sanctioned by the ZSE board.
The ZSE was left with “an egg in its face” after Econet blatantly disregarded the ZSE directive and proceeded to convene its EGM. On February 3, 2017,Econet shareholders met and the business of the day was conducted as per the circular to shareholders. The $130 million rights issue was approved by shareholders.
Apart from bungling the Econet rights issue, the ZSE in the past has been embroiled in unnecessary public fights and legal battles with issuers and stock brokers.
Some examples are:
– Un-procedural suspension of trading in Meikles Holdings Limited shares.
– CFI Holdings: dispute over disposal of Langford Estates by CFI. Tug of war on-going involving CFI and Fidelity Life (dispute also sucked in NASA and ZIMRE is yet to be resolved by regulators (SECZ and ZSE).
– ISB and EFE Securities cases which spilled into the courts.
The Financial Gazette wrote a very interesting story recently entitled: “Capital market bosses sleep on duty”. This article clearly shows that all is not well in the manner in which capital markets are being regulated in Zimbabwe, particularly at the ZSE.
Capital markets are very sensitive to regulatory interventions and other movements in the economy. The manner in which regulators of capital markets conduct themselves towards market players can make or break the markets.
Here are some of the negative impacts on poor regulation of capital markets:
– Erosion of investor confidence in the integrity of capital markets.
– Sends bad signals on security of investments.
– Shunning of capital markets by both local and foreign investors.
– Weakens attraction of FDI (needed to spur economic growth).
– Share price volatility (see Econet share illustration below) resulting in erosion of value.
– Market crashes (collapse).
The Econet rights issue debacle impacted negatively on the Econet share price.
The Econet stock for example, is reported to have lost 40 percent of its value over a three-week period preceding the rights issue EGM that was held on February 3, 2017. Econet share closed at US$0,3005 on January 13, 2017 and a market capitalisation of US$492 830 000. On February 3 (date of Econet EGM), the share closed at US$0,1798 and a market capitalisation of US$294 880 000, representing a decline of 40,17 percent in three weeks!
The above events have shown the ineptitude of the ZSE management in effectively managing the exchange. There is also clearly lack of coordination and communication between the ZSE CEO and the board itself. Fingers have been pointed on the ZSE CEO’s style of management which has been described as bullish. Stock Brokers have in the past expressed their reservations in the manner the ZSE CEO conducts business at the bourse. Previous boards at the ZSE failed to reign in the ZSE CEO over alleged “overruling of the board directives”.
It is therefore not surprising that the current ZSE board has taken the bull by the horns and suspended its CEO last week pending investigations into his conduct.
In a statement published in The Herald, May 3, 2017, the ZSE board was quoted as saying the “investigations into the conduct of its CEO Alban Chirume will not be restricted to the Econet Wireless Zimbabwe debacle but will spread into other un-procedural and unethical conduct allegedly committed by him over a period of time”.
These allegations bring to question the calibre of leadership at the helm of the ZSE.
If we recall the same ZSE CEO has in the recent past been embroiled in a messy divorce which publicly spilled into the courts and also caught attention of the media and was extensively covered by the H Metro, a daily tabloid in Zimbabwe.
Unless there is total change of leadership at the ZSE, we will continue to experience turmoil at the exchange as has been shown by the manner the ZSE handled the Econet rights issue and other cases prior to this.
It’s time that the SECZ tightens its regulatory oversight functions over the ZSE. The allegations made by Econet recently through statements published in the media should not be ignored as they raise numerous issues in the manner the ZSE is managed and conducts its business.
The ZSE board,on a positive note, looks like its keen to put its house in order as shown by the suspension of CEO Alban Chirume, pending investigations into his conduct. Putting the house in order is necessary to build public confidence in the local bourse as well as attract new investments. The ZSE, however, needs to improve on its public relations with the issuers and the investing public to win their confidence. These measures are critical for the growth of the Zimbabwean economy.