ECONET Wireless was reported to have sold its shareholding in suspended and partially specified Kingdom Meikles Africa Limited (KMAL). In a statement , the company said it had sold its 24,537,480 shares in KMAL at $0,71 per share. The shares were sold to Loakcape Investments (PVT) Ltd a consortium of business people with diverse backgrounds. These are types of deals why the Zimbabwe Stock Exchange (ZSE) is variously described as a lawless jungle.
This deal whilst details are sketchy casts a shadow on how the Zimbabwe Stock Exchange has lost credibility and control of share trading and how the ZSE is now behaving like a cartel which has been hired or borrowed. Firstly the Company was suspended on the Stock Exchange. Therefore shares cant and shouldn’t trade.Period.Otherwise what’s the point of suspending a Company and then let the shares trade? Selective application of the rules is clearly evident here.
When shares are suspended the net effect if to protect every shareholder until the situation is clear. This allows minorities to consult and get proper advice on what to do with their shares. As usual the major players would bend the rules and take advantage of the situation.
The second aspect relates to trading shares of a specified entity. According to Zimbabwean law if someone or an entity is specified it means all legal rights to act as an independent party are lost. If it’s a Company it almost means loss of economic value. This explains why Meikles value evaporated by an astonishing US$ 410 million from US$ 500 million to US $ million.
The selling price represents a premium of 29% on KMAL’s closing price of $0.55 before its suspension from the ZSE. It is clear the other minority shareholders did not get an equal opportunity to exit at such a hefty premium. It is common knowledge that all the major players in the KMAL drama managed to salvage their positions but the minority shareholders were not afforded an opportunity to exit at 29% premium. This is where the suspension was supposed to be upheld by the Zimbabwe Stock exchange. As usual the ZSE failed to even raise a voice trying to seek clarification or to alley public concerns about how shares can change hands when the Company is specified and suspended. The question has then to be asked if the ZSE has different rules for different players in the same game on the same playing field.
A closer analysis indicates that this deal was not sanctioned by the Zimbabwe Stock Exchange. How else can they sanction a deal on shares of a suspended Company? This then leads to the next point .This was an “off market deal”. These are irregular deals in publicly listed companies which are meant to circumvent the Stock exchange rules.
The off market deals are not allowed for various reasons these include tax evasion possibility and the illegal use of a listed Company for unintended purpose. This means Companies which are listed must be traded in the open and transparently with a clear public record. In this case this did not happen. And the ZSE reputation is further dragged into the mud just because the ZSE continue to be used in a manner that’s not fair nor transparent.
The boardroom spat has seen the value of the Zimbabwe Stock Exchange listed company drop from US$500 million last year to US$90 million. This represents serious value destruction which was mostly borne by minority shareholders whilst the main actors of the drama will most likely live to fight another day and recover their paper losses.
The biggest problem is how the ZSE has shown itself to be a toothless bulldog and aided and abetted asset looting instead of protecting investors of publicly listed Companies. Three very similar cases would best clarify this point. This is the three M’s case study. Moxon,Mawere and Muponda.The basics are the same with the state alleging various fabricated economic crimes against the Company owners. These allegations are followed by the owners being haunted out of the country plus specification. The assets are ear marked by those well connected and in no time at all the assets change hands under the most dramatic of conditions which any stock exchange should do all it can to investigate, probe and possible refuse to approve.
It is clear that had the ZSE acted decisively when SMM and related companies were being snatched from Mutumwa D.Mawere then Moxon and other KMAL shareholders could have been saved of this drama which resulted in loss of at least US$410. Similarly when Century/ CFX Bank was being snatched from Muponda and ENG Capital the ZSE could have sent a clear signal by suspending and penalizing Century/CFX Bank. It is precedents like these which only save to scare away investors .This is now becoming ZSE in particular and Zimbabwe in general’s culture that entrepreneurs are arrested,specified,harassed and exiled whilst their businesses and assets are taken over without the ZSE playing its proper role as regulator and enforcer to encourage transparency and greater investment on the Stock Exchange.
This article appears courtsey of GMRI CAPITAL – www.gmricapital.com.It is original content generated for 3MG MEDIA.
Gilbert Muponda is a Founder of GMRI CAPITAL . He can be reached at; www.ZimFace.com and www.facebook.com/home.php#/muponda?ref=name
Email: gilbert@gilbertmuponda.com . Skype ID: gilbert.Muponda
Twitter ; http://twitter.com/gmricapital
Phone: 1-416-841-5542
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