Eben Mabunda
For four years now, fungible stocks Old Mutual (OML) and Pretoria Portland Cement (PPC) have been suspended from Zimbabwe’s main bourse; Zimbabwe Stock Exchange (ZSE), accused by the Government of fuelling the parallel market exchange rate and capital flight.
A subject of contention is the use of the “Old Mutual implied rate” by the market, which the Government blames for driving the instability of the domestic currency. 48 months later, the suspension of these two regional heavyweights in Zimbabwe is a dent in Zimbabwe’s capital market, beckoning a lifting of the suspension.
What are fungible stocks?
Fungible stocks are cross-listed stocks with similar common securities listed on one country’s exchange and multiple regional or global exchanges. The shares, in this case, whether you bought them on the Zimbabwe Stock Exchange or the Johannesburg Stock Exchange, represent the same ownership interest in the company involved.
If you are holding an Old Mutual stock in Zimbabwe, it is as good as holding an Old Mutual Stock in South Africa. By extension, one can buy a PPC stock in Zimbabwe in the domestic currency and then dispose of it in South Africa for rands as it is the same stock in the two jurisdictions.
How did we get here?
First, let’s take a walk down memory lane to establish how exactly we got here in the first place. In June 2020, Old Mutual Zimbabwe, PPC, and Seed Co International were suspended by the Government from Zimbabwe’s main bourse; the Zimbabwe Stock Exchange (ZSE) due to the fungibility of their shares.
Authorities contended; that the fungibility of the shares was being used to fuel the parallel market. The Old Mutual implied rate (OMIR) was used to determine a forex rate that was widely adopted as the market-determined foreign currency exchange rate- one that was higher than its official counterpart.
In addition, authorities argued, the fungible counters were being used as vehicles of capital flight by investors who would buy a local stock of Old Mutual and then sell off on South Africa’s Johannesburg Stock Exchange as an example.
PPC
OML and PPC were thus suspended along with seed technology outfit, Seed Co International, which eventually agreed to the Government’s request for them to migrate to the Victoria Falls Stock Exchange (VFEX), beginning trade on the market in October 2020.
However, the idea of a switch to the VFEX has not ticked all the right boxes for the two JSE giants, OML and PPC.
Old Mutual current participation in Zim’s capital markets
OML still participates in the ZSE through its Exchange-Traded Fund (ETF), which was listed in 2021. However, Old Mutual is set to delist this instrument following the migration of several stocks to the VFEX which has impacted its ability to fulfill its mandate.
In a recent EGM notice, the ETF managers stated they could not meet their intended objectives owing to the migration of several counters from the ZSE.
At the same time Nedbank depository receipts initially valued at US$25 million were listed on the VFEX in the last quarter of 2022.
The backdrop is, that when the South African financial services firm, Old Mutual, concluded its controlled separation from Nedbank in October 2018 and unbundled its majority stake in the bank, Old Mutual shareholders received shares in the bank.
As a result, many investors from Zimbabwe ended up owning Nedbank shares that were unavailable for local trading. The VFEX listing has over the last 2 years provided a solution to the conundrum.
Challenges posed
Meanwhile, the suspension of OML and PPC has triggered valuation challenges, which saw the Securities and Exchange Commission of Zimbabwe allowing market intermediaries to use closing prices on the JSE at the prevailing official auction exchange rates for valuation purposes.
At the time of the suspension, OML had a valuation equivalent to US$91,74 million on ZSE with an average daily value trade of over US$ 250,000 that week.
The suspension of the 2 counters mars the investor perception of Zimbabwe and highlights the Government’s heavy-handedness in the capital market while working against concerted efforts to get more counters and investors on the foreign currency-denominated VFEX.
As a result of the suspension, more than 30,000 OML shareholders have been prejudiced from the gains of the local bourse’s capitalisation considering the ZSE All Share Index jumped over 1,000 percent in 2020 and 311 percent in 2021.
With the introduction of a new currency the ZiG, authorities fear that the return of Old Mutual Zimbabwe would see the return of the OMIR and this would once again be used to determine parallel market movements.
A bigger puzzle is how to value the two stocks considering Zimbabwe has moved from the Zimbabwe dollar to a new currency, Zimbabwe Gold.
Unconfirmed reports suggest the Government has been trying to persuade Old Mutual and PPC to follow Seedco’s route and list on the VFEX, a mission that has not tickled the fancy of the regional powerhouses with allegations, Old Mutual may be considering going the route of the courts.
In an earlier official statement, Old Mutual highlighted:
“The Old Mutual Limited share remains suspended from the Zimbabwe Stock Exchange. Engagements between Old Mutual Limited and authorities are still ongoing, with the view to facilitate shareholders on the Zimbabwe register to transact their shares”
Appearing on ZTN Prime’s “Beat the Market” (which I anchor) on DSTV294, Morgan and Co head of Research Tafara Mtutu said,
“We really need those companies to resume trading again but I think there are a lot of egos and that’s coming in the way of the economics of getting those stocks trading again.”
Kudzanai Sharara, Business Weekly deputy Editor on the markets focused program said there was no justification for the suspension in the first place. “They were never supposed to be suspended in any case. It’s long overdue and it’s very unfortunate.”
Sharara added that the continued suspension of the two counters translated to value loss for the investor community:
“We have got pension funds and individuals holding those shares and they would want an income from there but at the moment they can’t trade them.”
This is not the first time Zimbabwean authorities have accused private sector institutions of their macroeconomic woes. In the early 2000’s the Reserve Bank of Zimbabwe condemned local banks for the devaluation of the Zimbabwe dollar at a time the wheels of the country’s financial system were falling off.
Two decades later the question remains: did financial institutions in Zimbabwe cause the collapse of the Zimbabwe dollar or were they simply victims of a crumbling economy and a dying currency? The latter is more correct as financial institutions were a mere reflection of bigger challenges that the country was grappling with: excessive money printing and a decline in production.
Eben Mabunda is a financial analyst with nearly a decade of experience in regional markets. A business anchor for ZTN Prime, Eben also dabbles as a communications expert. Twitter: @EbenMabunda
