The decision by the ruling Zanu pf party to push for the compulsory delisting of Old Mutual Limited shares from trading on the Zimbabwe Stock Exchange (ZSE) is misguided and could spell out negative ramifications to the country’s investment attractiveness, economic and financial analysts have warned.
At its 341st session of the Politburo meeting last Friday, the ruling party took a position to direct government to remove the global conglomerate from the ZSE alleging Old Mutual was using its implied exchange rate to undermine the local currency, a position the party reiterated yesterday in a statement.
Old Mutual shares are listed and transferred in multiple stock exchanges, namely the ZSE, JSE and London Stock Exchange among others and lately to determine the company’s share price in Zimbabwean dollars, an Old Mutual Implied Rate (OMIR) was being calculated by comparing share prices in other countries.
Resultantly, the runaway black market rates have somewhat reflected the trends of the OMIR albeit pushed by multiple other factors.
Financial analyst, Victor Bhoroma said the OMIR is not calculated by Old Mutual as a company, instead it’s been calculated by independent market analysts to find the relative price of the Zimbabwe dollar which can also be done using any other commodities outside Old Mutual share prices.
“The problem is that authorities do not quite understand the Old Mutual Implied Rate and how it’s calculated. The OMIR is more or less the relative price that is used to calculate the future trend when analysts make predictions. What it means is that market analysts can actually use a liter of diesel or a liter of petrol then calculate the relative price,”
“How do you do it, you just calculate how much it costs to buy a liter of fuel in South Africa, how much it costs you to buy a liter in UK and in Botswana then from there you can actually calculate the relative price of the Zimbabwean dollar. The name is just called the Old Mutual Implied Rate because their shares were trading on three stock exchanges but otherwise any commodity can be used,”
“I think there is a general lack of awareness; they think that the Old Mutual as a company is the one that calculates the rate. It’s not Old Mutual. It’s us the market analysts who will be trying to find the relative price of the Zim dollar,” added Bhoroma.
On June 26, government suspended the ZSE from trading citing speculative and arbitrage opportunities distorting the foreign currency market.
However, analysts are wary that government intervention to suspend the bourse shows usurping of powers from the Securities Exchange Commission that has the mandate to regulate including suspending trading activities on the local bourse.
“Property rights are very important for both local and international investment and when you have a situation where a political party is giving an ultimatum for an enterprise or an asset to be de-listed, obviously it’s a very big concern for any potential investor,” another economic analyst, Pepukai Chivore told 263Chat Business.
“We are putting a dent on our attractiveness as an investment destination. We are also putting a dent on the plans to open the Victoria Falls Stock Exchange. De-listing Old Mutual, a very big international company as it is, we are shooting ourselves in the foot. Especially at a time we are trying to attract foreign investment. We are trying to blame regulatory failure on one company which is Old Mutual,” he said.
Old Mutual has 65 718 552 shares listed on the ZSE with a market value estimated at R 849 million in Zimbabwe and has 30 168 shareholders made up of pension funds, local institutions and individuals.
In February this year, the company’s fungibility (transferability of its shares across multiple stock exchanges) of its Zimbabwean shares was suspended for 12 months.
Market watchers say the development is expected to take a huge toll on the envisioned Victoria Falls Stock Exchange as potential investors may think twice about the idea of pouring money into a market were government unilaterally make decisions that disregard property rights.
Moreover, other quarters argue that exchange rate pressures have been exerted by government’s continuous creation of excess money into the economy.