The Sunday Mail
AS more companies seek to delist from the Zimbabwe Stock Exchange, questions are emerging as to whether or not minorities are getting true value out of their shareholding.
More than 15 companies have exited the ZSE in the last six years due not only to tougher monitoring and the general depreciation of company values, but also because some shareholders believe companies are better off operating away from public scrutiny.
However, it is minority shareholders that bear the brunt of board decisions as they are largely divorced from ownership of the company in the event of delisting.
This month, Radar Holdings will convene an extraordinary general meeting through which the board is, among other business, seeking shareholder approval to delist from the ZSE.
Last year, Radar traded a mere 79 483 shares valued at US$2 302, further highlighting how illiquid the local market is.
Experts say the cost of maintaining a listing is high in such circumstances as companies usually spend in excess of US$70 000 in listing fees and payments to auditors among other associated payments.
Economist Dr Gift Mugano says through delistings minority shareholders are often forced to accept decisions they do no agree with.
“First, delisting itself results in divorce of small shareholders from company ownership. Second, based on Zimbabwe’s circumstances, this will leave investors in the lurch as they have no option but to sell at whatever price is decided, which may be less than the actual value of the company.
“This on its own has negative multiplier effects which can manifest in the form of panic selling of shares which can perpetuate sell of shares and with the end of result leading to total demise of small shareholders,” says Dr Mugano.
The ZSE also says delisting is naturally prejudicial to small shareholders and bourse CEO Mr Alban Chirume opines that delisting is actually “the end for small shareholders”.
“Delisting poses a challenge in terms of hindering the ability of shareholders to sell off their shares through the exchange. Once delisted, it is generally harder for small shareholders to find buyers for their stake.
“As a result, the liquidity for small shareholders is reduced further due to the lack of a public platform to sell shares,” states Mr Chirume.
The stock exchange also provides a free daily valuation platform for all shareholders in a counter through price discovery as a result of the platform’s ability to bring together willing buyers and sellers.
Once a company delists, a company may elect to use other valuation mechanisms on a periodic basis for other purposes.
“However, a small shareholder who wishes to sell their stake and seeks to have a current value for their shareholding will find it expensive and unreasonable from a cost-benefit analysis to engage the services of a valuation expert,” explains Mr Chirume.
Delisting also means there will be reduced regulatory protection as a result of the absence of an obligation to comply with listing requirements and reduced interaction with shareholders for corporate actions.
Transparency may also be compromised and shareholders may not know of developments within the company.
Publication of cautionary statements, changes in directorship and financial statements are not compulsory for non-listed entities.
However, there are mechanisms enshrined in the ZSE Listings Requirements (the “Rules”) to allow minorities to independently vote on a voluntary delisting application.
In particular, controlling shareholders, their associates and any parties acting in concert with them, are prohibited from voting on the resolution to delist the company.
Adds Mr Chirume said: “A vote of 75 percent of minorities, or represented by proxy, at the meeting is required to approve the delisting of a company.
Minorities can therefore determine whether a company delists or not where a voluntary application for delisting has been sought provided the shareholders actually do attend the shareholders’ meeting.”
Companies have delisted due to failure to raise capital on the local bourse.
In the case of Radar, the company cited the unsustainability of remaining on the local bourse as its shares have become illiquid against falling profits and high listing fees.
For the financial year ended 2015, Radar reported a loss of US$288 071 from a profit of US$288 006 a year earlier.
“The reason for the proposed delisting is that the group continues to under-perform. Furthermore, compounding the group’s underperformance are the costs associated with remaining listed on the ZSE that are exuberant.
“Finally, the size of the company and the illiquidity of shares do not allow it to fully take advantage of being listed on the ZSE. For these reasons, the board believes that it is in the best interests of the company and the shareholders as a whole if the approval of the Delisting occurs as soon as possible,” said Radar in a recent notice to shareholders.
Analysts fear that they might be more delistings if the current economic situation continues.
Some of the companies that have exited the local bourse include African Banking Corporation, Astra Holdings, Interfresh Holdings, Apex Corporation, Celsys, Steelnet, Tractive Power and Trust Holdings.
