The proposed merger of African Sun and Dawn Properties as well as that of Zimre Holdings Limited and Zimre Property Investments is what capital markets are all about but should also act as a catalyst for the Zimbabwe Stock Exchange (ZSE) to get more listings on board as well as introduce more products, an official with the local bourse has said.
The last two weeks saw the above companies announce plans to merger, a move that will effectively reduce the overall number of ZSE listed entities but more tellingly the number of property stocks.
Currently the ZSE has three property stocks and if Dawn and ZPI successfully delist and fall under their listed parent companies, it will leave First Mutual Property as the only listed real estate company.
Ironically, First Mutual Property’s parent company First Mutual Holdings, is also listed and the latest corporate actions could give the parent company some incentive to follow suit.
While the trend in the past was that of companies demerging as a way of unlocking value, current economic headwinds, which have been worsened by the Covid19 pandemic, call for companies to streamline costs as a way of survival.
Mergers can help companies combine their strengths and streamline costs as well as pad weak points in their offerings.
ZSE listing obligations can also be reduced while some costs can now be shared.
Generally, the consolidation of two businesses results in synergies that increase the value of a newly created business entity.
Essentially, synergy means that the value of a merged company exceeds the sum of the values of two individual companies through the company’s revenue-generating ability or through reduction of the company’s cost structure.
Apart from First Mutual Properties, Dawn and ZPI another company with a listed parent is National Foods with Innscor as the major shareholder and Afdis, which is accounted for as an associate by Delta.
Fidelity Life and CFI also have a sizeable chunk owned by Zimre Holdings Limited.
The ZSE is, however, unfazed by the latest developments and sees them as part of capital markets and also as a challenge to broaden its offering.
The capital markets provide an avenue for long term capital raising as well as flexible corporate transactions including mergers, acquisitions and divestments, according to ZSE’s head of business development Anymore Taruvinga.
“To that extent the planned activities by the mentioned entities fulfil the role that capital markets should play.”
Mr Taruvinga said businesses are evolving in nature and mergers or acquisitions may be of strategic value under certain circumstances.
He said the planned merger of African Sun and Dawn will not be a surprise as the two entities were under one roof (under Zimbabwe Sun Limited) prior to 2003.
ZPI was also born out of ZHL in 2003.
“The ZSE is not worried about the planned mergers as the resultant entities will remain listed,” he said.
He said while the mergers, if successful, would reduce the number or pure property companies on the ZSE it reinforces the call for tax incentives in the real estate sector.
“As a business the ZSE prefers more listings in terms of numbers and has been pushing for the establishment of Real Estate Investment Trusts.
“Due to the capital intensive nature of real estate, REITs are the best model in the long term for resource mobilisation.
“To date we have successfully managed to have REITs recognised as funds and as securities but we still need to work on the tax incentives required,” said Mr Taruvinga.
The mergers and the subsequent delisting comes amid plans to launch the Victoria Falls Stock Exchange (VFEX), which Mr Taruvinga says is meant to entice new listings.