via Penny stocks to exit ZSE? | The Herald November 20, 2013 by Golden Sibanda
MANY lightweight stocks on the Zimbabwe Stock exchange appear poised to exit the bourse in the face of a biting liquidity crunch that has made costs and rigours of maintaining public listing unbearably expensive. Market analysts content that lightweight stocks such as Willdale, Zeco, PG and MedTech were likely to find maintaining public listing unsustainable and at this juncture appear the most likely candidates to exit the ZSE.
“The likes of Willdale, Zeco, PG and may be MedTech (may delist). For the rest there are new initiatives and foreign money coming in. A few might exit (the ZSE). Although most are not making profits, they are moving on,” said EFE managing director Mr Edgeton Tsanga.
A perusal of volumes of shares of companies listed on the ZSE shows that only a few blue-chip stocks account for the majority of traded shares. Another analyst with a leading stock broking firm who requested anonymity said times were tough and companies were exiting the ZSE not by choice, but because of lack of cost and challenges of remaining listed.
“Times are very tough. I do not think that companies are delisting because they don’t want to be on the stock market.
“Conditions are tough and companies need to cut costs. Remaining listed can be expensive,” he said.
Listed companies are required to adhere to certain rigorous reporting and accounting standards, maintain certain minimum internal and external audit and disclosure benchmarks, maintain register of investors, adhere to acceptable corporate governance guidelines, have specialist external financial and legal advisors and adhere to certain board standards.
This is also reflected in the ZSE’s total market capitalisation where only three bellwether stocks namely Delta at US$1,85 billion, Econet US$1 billion and Innscor US$469 million accounting for more than half of the value. The skew is also reflected in that about a fifth of the 70 actively traded stocks on the ZSE account for close to US$5 billion of the US$5,5 billion market value.
Certainly, pointers are that many penny stocks on the ZSE could opt for delisting in view of the costs of a public listing compared to benefits thereof.
A myriad of challenges are bedevilling the sector, the most critical being funding constraints to meet operational and regulatory obligations resulting in a significant number of public firms exiting or seeking suspension from the ZSE.
While various reasons have been cited for withdrawing public listing on the ZSE, it is apparent that the bottom line remains that the cost of maintaining a listing was found to outweigh the benefits of maintaining such. This is because the cost of maintaining a public listing and rigours thereof are high to ensure transparency and protection of the interests of investors and can outweigh the benefits of public image and access to cheap funding through initial public offerings, the first port of call in going public.
Mr Tsanga said there was need to create an environment that lures significant foreign capital in the wake of capital constraints and liquidity challenges that have claimed the scalps of many listed and unlisted firms. In a market plagued by a liquidity crisis due to a razor thin export base, insignificant foreign investment and small bank deposit base, Interfresh has become the latest to consider delisting from the local bourse.
Interfresh said its shares were trading at huge discount to net asset value and that raising fresh capital of equivalent value has proved limiting with a listing.
The company said it does not have significant borrowing capacity achievable at reasonable cost and would want to raise equity and convertible debt using valuation methods other than its stock market value.
The firm had managed to raise only US$3 million sometime this year. After delisting, Interfresh said it would then raise a total of US$6 million in equity and structured finance, aggressively restructure and grow the business and then relist the company at an appropriate time in the medium-term.
Interfresh shareholders will convene an extraordinary general meeting on December 11, 2013 to consider delisting from the ZSE by end of next month.
Penny stocks that were either suspended or voluntarily sought suspension from ZSE in 2012 included Cains, Celsys, Chemco, Gulliver and Interfin. Barbican, Redstar, Steelnet and Trans-Zambezi exited prior to 2012.
Tractive Power and Lifestyle sought voluntary suspension in 2013 after securing shareholder approval.
But with economic challenges appearing to persist at least in the medium term many penny stocks might find the cost of maintaining a public listing too expensive and arduous to maintain.
This particularly the case considering that of all lightweight stocks that have exited the stock market either voluntarily or forced only Tractive Power, Celsys and to an extent Lifestyle did not have financial problems of note.