The Zimbabwean capital markets have seen the worst of the last 20 odd years. The ZSE has seen more delistings than new listings and the road to getting there has proven very difficult for companies in Zimbabwe. Even after the establishment of a secondary market, the Financial Securities Exchange, there has been precious little movement. Finsec announced the introduction of Finsec private markets in December 2021, a development that didn’t receive the excitement that it rightly deserves. To understand what’s happening, why it’s happening and why it matters read on.
To understand the importance of this development we need to understand private markets first. Many may be familiar with the exciting world of startup funding and venture capital where investors get in on great investment ideas on the ground floor or thereabouts and cash in big when the company goes public (lists ok the stock exchange). The stories leave out a lot of detail about the journey. Private markets can be viewed as a halfway house towards listing. They allow companies to find private investors without the rigours and requirements that listed companies have to meet.
In 2020 then ZSE listed Powerspeed Electrical chose to delist citing that the costs of remaining listed outweighed the benefits. If a company that big can say that then smaller ones have little to no hope. Private markets provide an opportunity for companies to find private investment from institutional investors, high net worth investors and foreign investors. While every private investment seeking company isn’t immediately or eventually headed for a stock exchange listing looking at it this way helps us to grasp the concept. Some companies may simply seek private investment partners without the intention to list.
Debt and Equity
In the statement released on the Finsec Private Markets, it was made clear that the markets will also allow companies to seek debt financing in addition to equity. Debt in Zimbabwe is not a popular source of funding due to monetary policy issues which sooner or later have left either the borrower or the lender at a clear disadvantage in transactions. However, debt is still in use and it would not be surprising to see it being sought on the private markets.
Participation in the markets will be limited to institutional investors and high net worth individuals as is international best practice. While the risk of investing in these companies is low it may still be too high for the average individual to bear. We will follow the story closely and update when the market begins operating.