Tremors shake Old Mutual SA after ZSE clampdown

JOHANNESBURG Securities Exchange (JSE) listed financial services powerhouse Old Mutual Limited (OML) says crucial negotiations were underway to strike a deal with Harare following the suspension of its unit from the Zimbabwe Stock Exchange (ZSE) last year.

Describing the Harare operation as "a casualty of the government's actions taken to stabilise (a volatile economic) situation," OML CEO Ian Williamson warned that the one lengthy suspension would have dire implications on investors in Zimbabwe.

Government in June 2020 took the bold and controversial move to shut down the ZSE for two months.

It then suspended three fungible counters including Old Mutual Zimbabwe after a protracted bull run unnerved Zanu-PF hawks, who felt the blue chips were stocking a hyper-inflationary scourge.

Fungible counters trade on more than one bourse.

The Zanu-PF axe also fell on cement producer PPC, which trade its stock on the JSE and agrotechnology outfit SeedCo, which was also quoted on the Botswana Stock Exchange.

The three were given the option to list on the Victoria Falls Stock Exchange (VFSE), which began trading in October.

SeedCo has since moved to the VFSE, but PPC and Old Mutual are still looking into the issue.

"The suspension of our share was a casualty of the government's actions taken to stabilise the situation," Williamson said in a statement to financial results for the year ended December 31, 2020.

"We continue to engage with the Zimbabwean government to agree a permanent solution to this issue which is negatively impacting our shareholders in Zimbabwe."

Williamson said Zimbabwe continued to be challenging because of hyperinflation, which has triggered equity market distortions.

The report said Zimbabwe continued to face extreme macroeconomic instability with the impact of Covid-19 and lockdown restrictions having an adverse effect on an already ailing economy.

OML concluded that Zimbabwe continued to remain a hyper-inflationary economy.

This decision was made after careful assessment of the relevant factors including the rapid increase in official inflation rates.

"The inflation rate during 2020 continued to increase and as such, Zimbabwe continues to be a hyper-inflationary economy and continues to be accounted for as such in the year-end financial statements.

"Hyper-inflationary accounting requires transactions and balances to be stated in terms of the measuring unit current at the end of the reporting period in order to account for the effect of loss of purchasing power during the period."

He spoke as officials indicated that Finance minister Mthuli Ncube, who last month extended the suspension by another year was treading on eggshells in the determination of the two firms' fate.

Whatever decision is made would have a material impact on investors, particularly those holding on to the two stocks.

"This matter is subjudice and therefore I cannot really give you much without pre-empting," a reliable source told our sister paper, The Zimbabwe Independent.

"The only sensible thing to do was to extend the suspension while we agree on the solution."

In his directive extending the suspensions, Ncube said; "In my capacity as an exchange control authority...hereby order the suspension, for a period of twelve months from the publication of this general notice ending on the 11th March, 2022, of every authority, directive or order granted by any exchange control authority allowing the fungibility of shares of the following companies listed on the Zimbabwe Stock Exchange— (i) Old Mutual Limited; (ii) PPC Limited".

Lack of a binding decision to the matter brings into sharp focus the country's policy consistency and clarity.

The development comes amid an Old Mutual PPC share valuation standoff.

The market has called for a method that uses of prevailing share prices for the two stocks on the JSE in valuing their stocks.

Fund managers have been pushing Seczim for the directive to be made formally and come into effect in line with legal and operational procedure.

But the government has been opposed to the move, instead preferring valuation be on the basis of the share price at the date of suspension.

Valuation of the two firms' stocks is material to the fees earned by fund managers as well as the asset base of companies who are holding these stocks in this inflationary environment.

Pension funds and insurance companies, who fund about 70% of investment on the ZSE, are perhaps the most concerned constituency.