For some, the whole idea of going into business only makes sense if you can big. Really big. What’s bigger than listing on your countries national stock exchange? Not much really. For us, that’s Zimbabwe Stock Exchange. The exchange is not without its fair share of controversy including closure earlier this year. Despite this, the exchange is well developed and robust. So how does one go about getting their company listed on the Zimbabwe Stock Exchange?
The way to list on the Zimbabwe Stock exchange would be through what is called an Initial Public Offering (IPO). This marks the first time that a company’s shares are made available to the public to purchase. This is also called the primary market in because the money is paid into the capital of the company is listed. The secondary market refers to trade thereafter. In these cases, money exchanges hands between shareholders.
Why would you list on the stock exchange?
There are quite a few advantages to listing on the ZSE and they are as follows;
Access to Capital
Public companies have access to a greater pool of capital to draw from. In theory, by listing on Zimbabwe you open your company up to investment from all over the world. This is an advantage because of the various types of funds and size of funds you can attract. The Zimbabwe Stock exchange has a lot of institutional investors including Insurance companies, hedge funds and pension funds. These entities are notable for their long term view when investing.
Visibility
As we will see later there are some requirements to get on the stock exchange and also to stay on it. These requirements all result in your company being more visible. While individual management is always the ultimate indicator of where a company stands being on the stock exchange says something about the organisation of a company. This visibility is really useful if you intend to expand or partner with others perhaps internationally.
Additional capital
IPOs are not the only ways companies can raise capital on the Zimbabwe Stock Exchange. Companies can make additional capital through something called a rights issue. A rights issue is simply an offer to existing shareholders of additional shares in the company usually at a discounted price. Edgars Zimbabwe recently did so. Another method is the introduction or unbundling. In this process, a company listed on the ZSE will separate a division or fully-fledged business it owns and sells it to the public on the stock exchange. So the capital raising opportunities are plenty.
Disadvantages of listing on ZSE
Nothing in life is without disadvantages. The same can be said of listing on the stock exchange.
Regulation
If there is a clear disadvantage to being listed on the ZSE it is regulation. Because these companies shares are available to the general public in an open (over the counter) manner there are heavy requirements placed on how they behave and transact. Innscor knows a thing or two about how regulation gets in the way of business as the Competition and tariffs Commission has constantly blocked their moves to acquire businesses up and down their supply chain. African Sun Limited is also currently under the scrutiny of the Securities and Exchange Commission for its acquisition of Dawn Properties, which owns properties African Sun operates.
Disclosure
Listed companies also have heavy disclosure requirements. This is both in financial reporting and in shareholder communication. Some business moves require a degree of privacy and further to that having your financials open to the public opens up the information you would rather keep private to competitors.
Costs
The costs of compliance with regulation and disclosure all fall on the business. You might think well these are huge companies with large resources but miner FalGold recently announced (disclosure in practice) that they plan to delist from the ZSE at is simply heaping costs on them without advantages.
More moving parts
The larger the membership of a company the moving parts involved in decision making. This results in a slower company that may miss out on opportunities.
Listing requirements
5+ years of profitable operations
The first requirement is that the company have a proven track record of profitable operations dating back at least 5 years. This requirement is about the quality of the investment opportunities on the ZSE. Companies that have been profitable for 5 years straight in this environment show they have figured out the markets they operate in and represent a somewhat safe investment for even the ordinary investor.
US$10 million Capital
Remember that old joke about the way to get a loan being to prove that you didn’t need it? This is somewhat like that with companies required to have at least US$10 million in capital and reserves to qualify for listing on the stock exchange. The ZSE makes it clear that these are guidelines and they are willing to talk to anyone seriously interested.
Listing Fees
There are also fees involved with listing your company on the Zimbabwe Stock exchange. The biggest of these is the initial listing fee which is between $50 000 and $1 million calculated as 0.05% of the total market capitalisation that is listed. These figures have been converted to Zimbabwean dollars at 1:1 from their original US Dollar denomination. There are additional fees that are due to the exchange and paid regularly. These range from $2000 to $5000.
Other requirements
There are additional requirements such as an underwriter. In simple terms, underwriters guarantee to take up any of the shares that are not bought by the public at the initial listing. This is done at a fee to be paid by the listing company. There is also the matter of a sponsoring broker, who will act as the first broker for the shares. Companies are also required to publish a prospectus that informs the public of the company and its workings and structure. There are also specified date ranges within which certain information and documents must be made public.
For much more detailed information on listing on the ZSE, you can download the guide here.
