The ongoing slowdown in inflation and the relatively stable exchange rate is likely to see local companies turning to the Zimbabwe Stock Exchange as a platform to raise capital, ZSE chief executive officer Justin Bgoni has said.
This comes as the ZSE has gone through a long listings drought, except for a few unbundled entities.
The last completely new listing was that of Getbucks in 2016, although entities like Axia, in May 2016, and Seed Co International, in 2018, were to be demerged and separately listed afterwards.
The ZSE, however, believes there are still a lot of companies that can list on the bourse, and “the climate is now getting better for that”.
Speaking during the Zimbabwe Finance Online Conference, organised by Business Weekly and the Financial Markets Indaba, Bgoni said the previously high inflation levels against low real interest rates meant companies were, in the past, finding it cheaper to borrow than to raise capital through the equities market.
This, he believes, will soon change as borrowing now attracts real costs, especially in US dollar terms.
To borrow money, there is a real cost to it, therefore listing is becoming attractive now, Bgoni said.
“Currently, the interest rates (monthly) are higher at around 3-5 percent compared to inflation which is around one percent.
“You actually see that the gap is widening, and debt is now costing people money and we believe companies haven’t woken up to that reality or they are yet to see what the situation looks like, but those companies that are heavily indebted should look at their capital mix and consider listing.”
While in the past, the other issue was that companies were looking for hard currency to import raw materials or to retool, and hence could not use the ZSE which trades in local Zimbabwe dollars, the prevailing exchange rate stability and easy access to foreign currency at the auction trading system could result in a shift to the equities market again.
“Companies can now get foreign currency on the auction, therefore listing is now becoming an option, and companies now need to relook at their capital structure since borrowing is no longer the cheapest way,” Bgoni said.
He also disclosed that the ZSE is now getting better enquiries with regards listing.
In line with this, ZSE listed Meikles Limited has already announced plans to unbundle and separately list its agriculture unit Tanganda.
Bgoni said the ZSE is also working on making the listing regulations conducive for both new listings and already listed companies.
This comes as some companies such as the now delisted Powerspeed and Falgold had raised issues with regards some “burdensome” listings requirements that might need to be looked at.
Bgoni, however, said there is need to strike a balance as investors think requirements should be made tighter while companies see tighter requirements as burdensome. Other new listings are also likely to come in form of infrastructure bonds with Bgoni disclosing government has “some work” that it is doing in the pipeline. In terms of real estate investment trust (REITs), the ZSE is talking to some pension funds that want to list their properties on the ZSE, although there are some challenges that still need to be ironed out.
Bgoni, however, said there are two potential listings that are at advanced stage and is hopeful there could be listings between the second half of this year and early next year.
On the Victoria Falls Stock Exchange, Bgoni said although there is only one listing at the moment, “we are very happy with the pipeline that we have..and we are hopeful that we will get more listings during the year.” Also speaking during the same conference, Economist and Fixed Income Strategist at Rand Merchant Bank, Neville Mandimika, suggested that the ZSE and SECZim should develop an onshore foreign currency derivative market, which can be an incentive for foreign investors as they can hedge their foreign currency exposures.
“So the ability to develop some of those instruments and markets again become a very key incentive for offshore investors to come to our markets.” – Business Weekly