Market in Quandary Over Old Mutual, PPC Shares

Confusion reigns over valuation of the Old Mutual and PPC shares that were suspended from the Zimbabwe Stock Exchange (ZSE) in June 2020 with auditors having to ponder various possible calculations in the accounts of their clients.

This comes amid a growing push in the market to use prevailing share prices for the two stocks on the Johannesburg Stock Exchange (JSE), where they are trading, and calculate their local value at the prevailing interbank auction rates.

The share valuation is material to the fees earned by fund managers as well as the asset base of companies who are holding these stocks in this inflationary environment.

Pension funds and insurance companies, who fund about 70% of investment on the ZSE, are perhaps the most concerned by the development.

Information at hand shows fund managers have been strongly pushing markets regulator, the Securities Exchange Commission of Zimbabwe (SECZ), for the directive to be made formally and come into effect in line with legal and operational procedures, but government is opposed to the move, instead preferring the valuation be on the basis of the share price at the date of suspension.

This, however, flies in the face of the government’s own attempts to paint a picture of a free market economy where even its weak local dollar is valued on an interbank auction system.

An impeccable source close to the government, SECZ and the ZSE said the government’s attitude against the preferred position is currently delaying promulgation of a directive to use the JSE share prices at interbank rates for audited accounts and other future transactions until the matter is concluded.

According to the source, who is involved in the ongoing deliberations, the government appears to be losing the battle.

“This issue is more political than anything else, also especially given there was a standoff between the government and Old Mutual, otherwise it could have been resolved and finalised in December,” said the source.

As previously reported by this publication, Old Mutual sought to get a directive from the government of Zimbabwe, expecting it from necessary corporate governance procedures to delist from the ZSE and list on the Victoria Falls Stock Exchange (VFEX).

Sources even indicated Old Mutual has no intentions of listing on the VFEX, but the firm insists it is committed to the Zimbabwean economy with intentions to continue driving its range of investments. The VFEX is a subsidiary of the ZSE and was created for local and regional firms to raise capital in foreign currency.

Market experts say valuation of the shares in question could prove to be a mammoth task for industry and investors stand to lose because of the exchange rate scenarios.

“The question is what your shares are worth now and we have pension funds and other corporates who need this for their 2020 year end results,” the source added.

A fund manager said it has been over seven months since the shares have been suspended and valuation is critical to make the shares liquid.

The Insurance and Pensions Commission recently said the suspension of Old Mutual and PPC shares affected asset value.

“Price aside, when are these counters coming back to trade? How long can the investment community sit looking at shares? You must also remember auditors are going to want a value, what are they going to use?” said a fund manager who requested anonymity

Newly appointed Association of Investments Managers of Zimbabwe (AIMZ) chairman Farai Gwaka said his association had reached an understanding with the SECZ.

“What we have agreed with SECZ is that we will use the respective prices of Old Mutual and PPC on the JSE and you convert at the prevailing interbank rate at that time like what we do for some shares that are not on the ZSE like Nedbank,” Gwaka told businessdigest.

“That is how we have been valuing them, so we are just applying that valuation on Old Mutual and PPC share.

“The regulator is expected to issue a directive to that effect, it should come out soon and that is the way forward on that one. That was the agreed position between industry and the regulator.”

Efforts to get a comment from the SECZ were fruitless.

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