Zimbabwe’s ruling party, ZANU-PF has recommended the delisting of diversified financial services firm Old Mutual Zimbabwe from the Zimbabwe Stock Exchange (ZSE) to an alternative proposed United States dollar-denominated bourse.
A fortnight ago Government suspended trading on the ZSE over the fungibility of the multi-listed company’s share price.
Old Mutual Limited is listed on the Johannesburg stock exchange (SA)
Africa, London Stock Exchange, Zimbabwe Stock Exchange, Stock Exchange of Namibia and on the Malawi Stock Exchange.
Closure of the stock market was likely targeted at multiple-listed Old Mutual Zimbabwe, which provided proxy exchange rates (the Old Mutual Implied Rate) implied by their prices on foreign bourses such as the London Stock Exchange.
Said the ruling party’s Acting Secretary for Information and Publicity, who is also the party’s spokesperson, Patrick Chinamasa today:
“Fungibility is open to the risk of being abused as has been the case in Zimbabwe and has become a vehicle to externalise capital out of Zimbabwe.
“Allowing the Old Mutual share to be traded on multiple stock exchanges has given rise to the Old Mutual Implied Rate (OMIR).
Fungibility has created an opportunity for the determination of foreign exchange rate in Zimbabwe to be determined from activities emanating from actions of speculators operating on the stock exchange…
“ZANU-PF is totally opposed to the fungibility of the Old Mutual Shares and to this end it reaffirms its policy position that the ZSE should compulsorily de-list the Old Mutual Limited shares from trading on the ZSE.
“To protect the interests of the 30168 shareholders of Old Mutual Limited, ZANU-PF is recommending to its government that it sets up a stock exchange which will trade only in US$.
“Old Mutual Limited can then be allowed to migrate, find home and trade on such a foreign currency denominated counter in Zimbabwe.”
The Victoria Falls Stock Exchange?
Interestingly earlier in May, Finance and Economic Development Minister Mthuli Ncube announced plans to establish a foreign currency stock exchange in Victoria Falls – the Victoria Falls Stock Exchange (VFEX).
But this was some months before the Government went head-to-head with Old Mutual Zimbabwe.
Infact, the VFEX proposal was a follow up to a pronouncement in Minister Ncube’s 2019 fiscal review statement in which he highlighted the need for Zimbabwe to establish an offshore financial services centre.
But with modalities for the VFEX yet to be put in place, Old Mutual could be left hanging for a while if the idea is to move the company to the proposed exchange.
This will be a cause for concern for the company’s numerous investors. Locally, Old Mutual Limited has 30 168 shareholders consisting of pension funds, local institutions and individuals.
Added Chinamasa:
“Trading on other counters has been normal and the party is recommending that trading be resumed.
“Setting up a foreign exchange denominated stock exchange is an appropriate institution for raising and attracting foreign direct investment into Zimbabwe.
“Companies that want to invest in Zimbabwe and requiring foreign currency would then list on such a stock exchange to attract foreign direct investment in foreign currency for investment.
“The details of implementing this recommendation is left to government including the timeframe within which this recommendation can be implemented.”
A flawed thought process?
“We have also been perplexed by claims purporting that the OMIR has served somewhat as a benchmark for the determination of parallel foreign exchange market rates,” said Zimbabwean analyst Batanai Matsika in a recent note.
“The crux of the matter is that the OMIR is a simple calculation that involves comparing the Old Mutual Limited share price on the ZSE to that on the JSE (Johannesburg Stock Exchange).
“The point here is that implied exchange rates have nothing to do with a stock market since the concept can be applied on almost any standard product or item (such as a burger, boiled egg, television set or even a pint of beer) that is priced across different markets.”