Friday the 1st of October marked the first trading day of a new month and the final quarter of the year 2021 on the ZSE. So the excitement was expected, especially as the ZSE ended the month 25.58% up after ending the previous month 3.73% down. What was not expected was the suspension from trading of Cassava Smartech Zimbabwe Limited for failing to meet its reporting requirements. What caused the suspension and what does it mean for Cassava shareholders?
What went wrong?
There are requirements for listing on the ZSE. These are agreed to by companies when they list. The particular requirement that Cassava failed to meet here is on reporting. Cassava has a year-end date of February, similar to its parent Econet. Under normal circumstances, (emphasis on normal) companies are required to publish audited full-year results within 3 months of their end of the financial year. That would’ve made the publication of results due at the latest end of May. However, the ZSE has granted many companies extensions in light of the difficulties which Covid 19 has placed on processes involved in preparing financial statements particularly the audit process. Most companies that applied were allowed a further two-month extension.
In Cassava’s case, they applied for an extension and on the 28th of May, they advised shareholders they would publish results by the 30th of June 2021. Cassava’s extension only came at the end of September, after multiple further extensions. So to be clear Cassava’s suspension is because of failure to provide financial statements even after being granted a generous series of extensions that have amounted to four months.
The listing requirements on communication are meant to protect investors and provide them with timely information. If you own or run a business and have to wait for 7 months to know how well if at all, the business is doing you wouldn’t be expected to feel comfortable in the situation. Cassava’s attitude in the wake of the suspension has also been interesting. They issued a statement later in the same day stating that results were delayed due to an accounting matter which they are resolving and will be able to publish by the 18th of October.
Why did this happen?
Cassava has not revealed much other than that it is an accounting matter that has delayed their results. Many have speculated on what the accounting matter could be, with the prevailing theory being that it has to do with reconciling matters around trust accounts related to the mobile money platform Ecocash, which Cassava has announced will change the name to. What we know for sure is that thus far Cassava is not comfortable with publishing whatever results they have.
What happens to your shares?
The big question people who are invested in Cassava have been asking is what happens to their shares. The short answer is nothing. Seriously, for the moment nothing happens to the shares. The suspension is on trading the shares of Cassava, for the moment Cassava remains listed on the ZSE. As mentioned in the statement Cassava shares may resume trading once they have met the requirements.
What happens next?
The unfortunate issue here is that shareholders have been prejudiced. While the value of the investment will hold still until further trading the attractiveness of Cassava is certainly questionable going forward. It is reasonable to expect an exodus of Cassava shareholders in the immediate term once the suspension is lifted. They say once the bell has been rung it cannot be unrung. The rest will be revealed by the results.