via More public firms to delist from ZSE | The Herald December 13, 2013
MORE public listed firms could delist from the Zimbabwe Stock Exchange for the purposes of raising large sums of fresh capital as this would ensure they get higher valuation figures. Financial analysts say the current capitalisation figures on the Zimbabwe Stock Exchange are undervalued and based on that companies might not raise meaningful funds.
The tight liquidity situation has consequently affected the level of activity on the local bourse with mostly foreign investors accounting for the majority of activity, meaning the bargaining power sellers was greatly weakened.
The difficult economic operating environment characterised by an acute shortage of funding to support operations, recapitalize and replace old equipment, has also made sustaining a public listing an expensive luxury.
In effect, such a scenario results in little movement in price of shares of many firms either due to fewer buyers or lack of interest in the stock due lukewarm performance, holding down the potential growth of stock prices.
As such, quoted entities have found it difficult to convince investors to inject large amounts of capital in a companies whose value by market benchmarks reflect a lower net worth to the firm’s potential, intrinsic and asset value.
Against this backdrop, companies have found it less strenuous and flexible to negotiate for higher capital investment into companies using alternative valuation methods than market capitalization benchmarks, because true value is depressed by investors’ constrained capacity to buy. Companies that delisted, seemingly, to pursue much flexible capital raising initiatives as private companies include Cairns, Caps Holdings, Chemco and Steelnet and Interfresh. FBC Securities Investment analyst Mr Albert Norumedzo said delisting from the Public Equities Market was a signal of mixed intentions and indications.
“Some have justified delisting with the need to seek a fair value on their counter, which to a certain extent could be true. Apart from the company’s performance, Public listed Equity Valuation is a concoction of many socio,political and economic factors like country risk, market activity, peer performance and valuation and market analysts and Investor sentiment among other things. “When perception is not good in the market the stock price is penalised despite good prospects or performance. In such cases a company may delist to seek a fair valuation,” Mr Norumedzo said.
He added that private equity investors are high return seekers who invest in ventures that display immense potential and value prospects, which cannot be said for many of the companies that have since delisted from the ZSE.
Mr Norumedzo also said that if anything many of the delistings from the ZSE were triggered by the need to escape the public eye and the demands of listing and the expectations of investors and analysts that are placed on management.
Many other ZSE listed companies have found it difficult to sustain public listings and had their listings terminated either voluntarily or after regulators decided as such.