THE government wants assurances that lifting PPC and Old Mutual Zimbabwe’s (OMZ) suspension from the Zimbabwe Stock Exchange (ZSE) will not cause exchange rate volatility, the Zimbabwe Independent can report.
In 2020, PPC, OMZ, and Seed Co International were suspended from the ZSE owing to the fungibility of their stocks as this had resulted in the market using these share prices to calculate an implied exchange rate.
Because these counters are listed in other countries with stable capital markets and currencies an implied exchange rate was derived which the local market adopted.
Fearing an eruption of problems, the government suspended the firms.
In the past two months, the government has vowed to protect Zimbabwe Gold (ZiG), a new currency that was introduced in April.
Government’s concerns emerged at the two-day inaugural Capital Markets Conference this week.
Capital market players said suspensions have been dragged for too long.
“One of the main challenges that has been facing the industry is the issue of restrictive legislation around the capital markets. There was an issue of high capital gains withholding tax on the exchange, the trading of shares on the market. There was an issue of investing period where if you sell before 180 days, you will get charged higher taxes,” ZSE chief executive officer Justin Bgoni said, in an interview.
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ZSE added that the continued suspension of the two counters had affected pension funds and retirees.
Fungibility speaks to the ability of a good or an asset to be interchanged with other individual goods or assets of the same type.
Delegates who attended the conference noted that the move on PPC and Old Mutual had dealt a blow on the market.
Financial analyst Ranga Makwata said common ground between policy makers and capital markets was needed as the market could not progress with adverse and negative policies.
“I would like this house to at least come up with some way to find common ground between the policy makers and the capital market players because we should be part of the economic development agenda. Even the National Development Strategy 1 (NDS1) policy, the capital market should be a bigger part of that, by helping in raising capital,” he said.
“And it’s something that we have experienced before, where capital markets can actually bring in portfolio investments. So, to get us started, there are some very adverse and negative policies that have actually been implemented in the past. So, as a confidence building measure, things like the suspension of Old Mutual Zimbabwe and PPC should be resolved.”
He said the current market punished investors for wanting to sell shares, if done before 270 days, as a heavy tax was levied.
“And, it’s actually very, very difficult because we interact with investors and we have been trying to get money into this country. And you can’t say to someone ‘bring money but you can only sell after 270 days’,” Makwata added.
He said that the market was not responsible for the crash of the currency as it was just a consequence of current market conditions.
“As capital market players, we want to partner government in pushing ahead the NDS1, but we also want government to consider us a partner. We are not responsible for the crash in the currency,” Makwata said.
“It actually doesn’t serve us if the currency crashes. So, are we any closer to getting any of those harsh policies being lifted so that the market can go back to its heydays?”
Association of Investment Managers of Zimbabwe chairperson Shelton Sibanda said the country needed to do more in terms of attracting foreign investors with the lifting of the suspension of PPC and Old Mutual Zimbabwe being a big step.
"We need to do way more than that, which is why for the issues around your Old Mutual and PPC suspension, they are critical. We need to solve them. We are already starting on the back foot because capital is timid, and it will go where it is wanted,” Sibanda added.
However, Finance, Economic Development, and Investment Promotion deputy minister David Mnangagwa tasked the ZSE and Securities and Exchange Commission of Zimbabwe (SecZim) to come up with a position paper showing that the fungibility of these shares, would not add to market volatility.
“I am not going to talk about OMZ and PPC on this platform just yet because there are discussions in place. But again, some of these actions have been taken not because some of the players were the causes but they became catalysts,” he said.
“Now, we have got a new currency, which in our briefing I was saying is going to be our biggest infrastructure project, this is something that we are going to guard jealously. I have asked the CEO of the stock exchange and the regulator to come up with a position paper that gives comfort to government that through the fungibility of some of these shares, one does not then wander around the exchange rates that are there.”
He said that as government, the message needed to be clear that they would go to all extents to keep ZiG stable.
“This means being responsible, but also means that in the areas where we suspect there might be irresponsible behaviour or there has been irresponsible behaviour, you will see action on government’s part,” Mnangagwa said.
Asked by the Independent to respond to Mnangagwa, Bgoni said there were several options to explore.
“On the Old Mutual and PPC resolution, there are several options that we have. We have an option of bringing it to the market and with that comes the risk of the implied rate. We have an option of allowing these shares to be sold in South Africa,” he said.
“We have an option of allowing these shares to be sold on the Victoria Falls Stock Exchange. So, all options are being looked at. We believe that in the interim, what we need to do, which is important, is to give relief to the shareholders. I think that’s important for now.”
He said ZSE was working closely with Treasury and Old Mutual Zimbabwe to find a solution.
The conference was created by a partnership between Zimbabwe Independent, ZSE, and SecZim.
