Archive for the 'Regulators' Category

Uganda Capital Markets Authority joins IOSCO MMoU Appendix A

Capital Markets Authority (CMA) Uganda has taken a big step forward for international links, after changes to Ugandan law. CMA been admitted by global securities standards setter International Organization of Securities Commissions (IOSCO) as a signatory to Appendix A of the IOSCO Multilateral Memorandum of Understanding (MMoU).

The MMoU provides an international benchmark for cross-border cooperation and offers securities regulators tools for combating cross-border fraud and misconduct. Uganda’s regulator will have increased access to knowledge and research through the IOSCO network.

The admission follows the recent amendment of Uganda’s CMA Act. The capital market regulator becomes the 112th member to append its signature to the memorandum, which was instituted in 2002.

Keith Kalyegira, the CEO of CMA, said in a press release: “This is a big step for CMA and Uganda in general and I must thank all the stakeholders that have been very instrumental in enabling us to reach this milestone including the CMA Board; our parent ministry of Finance, Planning and Economic Development; Parliament of Uganda; and the Ministry of Justice and Constitutional Affairs which has tirelessly worked with us to enhance our regulatory framework so that it can fit international standards.

“Our desire going forward is to transform Uganda’s capital market into one of the most efficient, and trusted centres for attracting capital and providing capital in Africa, and this could not easily be achieved without enhancing our regulatory framework to fully suit international standards by ensuring we comply with Appendix A requirements”.

CMA Uganda became a member of the IOSCO Appendix B in 2007 and has since been compliant with most of the international best practices in regulation. However, its participation, engagement and contribution to international dialogues was limited.

The IOSCO MMoU supports mutual cooperation, assistance and consultation among members to ensure compliance with, and enforcement of securities laws and regulations. It is a response to more international activity in securities and derivatives markets.

The formal signing ceremony will be held at the 42nd IOSCO annual conference due in Jamaica in May 2017. CMA first applied to IOSCO to become a signatory to the IOSCO MMoU in September 2007, and was assigned to Appendix B. The capital market regulator proactively started steps over several years towards legislative change to bring Uganda’s legislation into compliance with the MMoU. The reapplication was submitted to the IOSCO General Secretariat in July 2016.

East Africa regulator links

CMA is also a member of the East African Securities Regulatory Authorities (EASRA), which is instrumental in the development of the capital markets industry in East Africa. This includes some joint oversight activities, particularly for financial firms operating in more than one of the East African Community EAC countries. CMA Uganda also does joint inspections with its Kenyan counterpart.

Uganda’s growing capital market

CMA recently concluded its 5-year strategy, and expects to launch a 10-year capital markets development master plan by the end of March. This will map a growth plan for Uganda’s capital market which already includes 2 Ugandan securities exchanges. It will lay a strategy for increasing access to patient capital to finance the growth of commerce and industry in Uganda.

In Uganda, CMA cooperates with other government agencies in the financial sector including Bank of Uganda, the Insurance Regulatory Authority, the Uganda Retirement Benefits Regulatory Authority (URBRA), and the Uganda Registration Services Bureau. The Uganda Registration Services Bureau acts as the Registrar of Companies and implements the Companies Act, 2012 (Companies Act).

It also works with law-enforcement agencies such as the Office of the Attorney General, Director of Public Prosecutions and the Uganda Police. CMA, Bank of Uganda and the Uganda Insurance Commission (now the Insurance Regulatory Authority) signed a Memorandum of Understanding to facilitate cooperation and exchange information in the securities, banking and insurance sectors.

Trading of listed securities is conducted through the Uganda Securities Exchange (USE), established in 1998. There are 16 listed companies on the USE, of which 7 are from privatization of government parastatals. Trading of government bonds on the USE was introduced in 2004.

In July 2015, an automated trading system was introduced on the USE. The clearing and settlement period is 3 days (T+3). A computerized Securities Central Depository System (SCD) was put in place in 2010 following the enactment of the Securities Central Depositories Act (SCD Act) in 2009. The SCD has enabled the USE to automate the clearing and settlement process.

On 4 March 2014, CMA’s Board of Directors considered and approved the application of ALT Xchange East Africa Limited to operate as a stock exchange in Uganda in accordance with the CMA Act.

Kampala view (credit www.enjoyuganda.info)

Regional integration tops 2017 agenda for Africa’s exchanges

Stock exchanges across Africa should be working towards regional integration, says Prime Minister of Rwanda Anastase Murekezi. He was guest speaker at the 20th African Securities Exchanges Association (ASEA) annual conference. The conference’s action agenda would see the regulated stock exchanges driving industrialization and economic transformation.
Panel discussions highlighted the opportunities for African exchanges, provided they adapt to meet the needs and demands of local investors and issuers. They must also find the balance between local context and environment, and alignment with global best practices.
Government support and engagement are keys to the success of exchanges and to providing the capital to grow economies. Governments should continue to create enabling environments that encourage investment, economic growth and development. Regulation should follow market needs and focus on supporting development as favourable regulatory frameworks are essential for sustainable economic growth.
Other challenges the exchanges should continue to work on include: financial inclusion or letting more people access the capital markets for investing and for raising long-term risk capital for their enterprises; financial literacy and investor education; product innovation including using technology and creating innovative platforms for new products; and finding ways to finance the missing middle of small and medium enterprises (SMEs) in Africa.
Exchanges should encourage greater emphasis on environmental, social and governance components to enhance corporate transparency and performance.
Celestin Rwabukumba, CEO of the Rwanda Stock Exchange, said innovation and technology would enable Africa’s capital markets to harness resources to fuel structural transformation: “Currently, less than 5% of the African populace participate in the capital markets; this means that there is a huge opportunity to widen the base of African capital markets by incorporating new models based on technology and other creative innovations that target provision of direct linkages with the ordinary citizens in order to bring them in the loop of resource mobilization and utilization”.
The 20th ASEA conference brought together 300 delegates, including securities exchange CEOs, regulators, ministers, investors and others. It was held in Kigali on 28-29 November 2016. The theme was “Road to 2030: Making the African capital markets relevant to the real economy”.
Speakers included Claver Gatete, Rwandan Minister of Finance, and Prime Minister Murekezi delivered a message from the President of Rwanda, His Excellency Paul Kagame, in which he commended ASEA for its role in deepening the capital markets as a way of addressing the challenges that hampered Africa
Other speakers included Prof. Kingsley Moghalu, (former Deputy Governor of the Central Bank of Nigeria), Tonye Cole (founder of Sahara Group), Staci Warden (Executive Director, Milken Institute), Sandy Frucher (Vice Chairman of Nasdaq), Paul Muthaura (CEO Capital Markets Authority Kenya), David Grayson (Co-founder and CEO of Auerbach Grayson & Company), as well as CEOs from ASEA member exchanges.

New South African stock exchange ZAR X to start 3 October

Trading is to start on South Africa’s new ZAR X securities exchange on 3 October. It gained a licence on 2 September and the first listings will be Senwes and  Senwes Beleggings, with up to 5 listings planned for first week October.

Another exchange is also being readied, 4AX also called 4 Africa Exchange (see story below).

South Africa’s regulator, the Financial Services Board, announced on 2 September that it had granted licences to ZAR X and 4 Africa Exchange Licences. It said: “The Registrar of Securities Services.. received and considered applications for exchange licences from ZARX (Pty) Ltd (“ZAR X”) and 4 Africa Exchange (Pty) Ltd (“4AX”) and has, in terms of section 9(1) of the Act, granted ZAR X and 4AX exchange licences with conditions after careful consideration of objections received as a result of a notice referred to in section 7(4).”

Initially FSB gave ZARX a conditional licence but in August a court ruled in favour of an application by the JSE, which had argued there was no provision for conditional licensing. JSE CEO Nicky Newton-King said at the time there were concerns about the complexity and the potential for systemic risk that multiple exchanges could bring.

ZAR X has a different level of risk as it requires to be pre-funded, which means that participants must lodge scrip and cash before they trade and settlement is then the same day (T+0). In July the JSE and other market participants moved their market from T+5 settlement to T+3 without any problems. Most institutional investors prefer transferring stocks or money after they have traded, when they know the exact amounts to transfer.

Etienne Nel, CEO of ZAR X, said: “We need to create a level of co-operation within the market space to make it as simple as possible for all participants to coexist”.

Speaking to Business Day TV, he said: “..we are very happy, obviously, delighted since it’s been a long time coming. To give you some context around the conditions, it’s obviously what we applied for. We initially said we were not going to be offering derivatives to the market and obviously as a result one of the conditions is we may not offer derivative trades on our market. Similarly, we cannot offer shares already listed on another exchange, but that was never in our application so we are obviously delighted with the licence that we finally got.”

Nel said in September they were busy getting brokers on board and putting investors through necessary screening and checks of the Financial Intelligence Centre Act (38 of 2001 “FICA”)

Nel says ZAR X has less onerous rules on admitting companies for trading (listing requirements): “In our approach to listings.. we will have a conversation with the issuer and we are taking what is called a principles-based approach to listing rather than rules-based. Now what that achieves is if we get the slightest inclination that something is awry within a company we would actually rather walk away rather than doing the listing.. A rules-based environment .. becomes a tick-box exercise and in that environment you would end up with a situation where people end up finding loopholes, which a principles-based approach does not allow for”.

It breaks over 100 years of monopoly Africa by the Johannesburg Stock Exchange, as the JSE was founded in 1887 but there were several stock exchanges around during the first South African gold rush. Speaking after the licence was issued, 4AX CEO Fay Mukaddam said in a press release: “We are delighted to have secured our licence. South Africa is a vibrant, growing market with enormous potential and we are confident that there’s a strong appetite for an additional licensed exchange to further develop and deepen the capital markets in the country.. 4AX can stand as a vehicle for diversity, which in turn, will drive real economic inclusion”. It will be an “empowered exchange” and will aim at retail investors but also attract institutional trading.

Both ZARX and 4AX will use Strate as their central securities depository (CSD).

 

Etienne Nel, CEO of ZAR X (credit timeslive.co.za)

Etienne Nel, CEO of ZAR X (credit timeslive.co.za)

About 4AX – new South African securities exchange

South Africa’s second new exchange, which also got a licence according to the 2 September announcement by the Financial Services Board (FSB), is 4AX, also known as 4 Africa Exchange. It plans to trade securities that are currently traded over-the-counter (OTC) and to go live early in 2017.

Speaking after the licence was issued, 4AX CEO Fay Mukaddam said in a press release: “We are delighted to have secured our licence. South Africa is a vibrant, growing market with enormous potential and we are confident that there’s a strong appetite for an additional licensed exchange to further develop and deepen the capital markets in the country.. 4AX can stand as a vehicle for diversity, which in turn, will drive real economic inclusion”. It will be an “empowered exchange” and will aim at retail investors but also attract institutional trading.

According to the background on its website: “A unique situation in South Africa has however created the need for 4AX. Previously, a number of South African companies issued shares and facilitated trading in the over-the-counter (OTC) market using unregulated OTC platforms. The current OTC market boasts a combined market capitalisation in excess of R30 billion ($2.2bn).

“As the OTC market expanded, the FSB recognised a need for greater regulation to protect shareholders and ensure a fair, orderly and transparent marketplace for issuers. The FSB determined that all operators of unregulated OTC platforms must cease operating or apply to become licensed exchanges under the Financial Market Act of 2012 (FMA). Board Notice 68 of 2014 reaffirmed the view of the Registrar that operators of exchange infrastructure should be licensed and that a proliferation of exchanges should not be allowed. This has caused significant upheaval in the market, for both issuers as well as shareholders.

“As a result of the regulatory amendments a substantial number of OTC companies are now in breach of the FMA. Faced with significant potential penalties under the FMA these companies have either stopped operating their OTC platforms or applied for extensions from the FSB, whilst searching for an alternative to unregulated OTC platforms. 4AX provide the solution.

Maponya Group has a 15% shareholding, other shareholders listed on its website include Global Environmental Markets Ltd, Capital Market Brokers which is a leading member of the Stock Exchange of Mauritius, independent fiduciary Intercontinental Trust Ltd,  agricultural firm NWK, and investment banking firm Pallidus.

First graduate course for capital markets professionals

Capital markets practitioners across Africa can benefit from a graduate-level programme launched this week by the IFC, a member of the World Bank Group, the Milken Institute and the George Washington University.

The programme initially focuses on sub-Saharan Africa, and aims to expand to other regions. The curriculum is tailored to address challenges specific to developing economies, according to a press release.

Michael Milken, Jingdong Hua and Steven Knapp

Michael Milken, Jingdong Hua and Steven Knapp

The programme was launched on 3 May and the first 20 students from capital market authorities, central banks and ministries of finance in Angola, Democratic Republic of Congo, the Gambia, Kenya, Malawi, Mozambique, Rwanda, Uganda, Saudi Arabia, the Seychelles, and Zambia begin in August 2016 and will graduate in May 2017.

The course will equip mid-career professionals with the analytical tools and practical experience to support capital-market development in their countries. It is held over eight months and combines rigorous coursework and a work placement opportunity.

It leverages the academic excellence of the George Washington University School of Business, offering course work from financial modelling and computation to regulatory and legal aspects of capital-market development. The IFC boosts this with case studies drawn from it unparalleled experience in supporting domestic capital-market development in countries as diverse as the Dominican Republic, India, and Rwanda.

A speaker series will offer additional opportunities for interaction with thought leaders, practitioners and pioneers in the international capital markets. In the spring semester, program participants will put learning into practice through work placements with the Milken Institute’s wide network of public and private sector collaborators.

When they successfully complete the programme, participants receive an academic certificate from the George Washington University and are expected to return to their home countries to work on local capital markets for at least 2 years. They will also belong to an active alumni network that will collectively foster the next generation of capital market leaders in developing regions.

Michael Milken, Chairman of the Milken Institute, said: “Capital markets multiply the vast potential of human and social capital—and thereby contribute to economic growth and prosperity.”

Steven Knapp, President of the George Washington University, said “This unique partnership has the potential to bring millions of people in the developing world out of poverty by developing effective capital markets and stronger financial institutions. The program will make the connection between classroom instruction and real-world experience that is a hallmark of the George Washington experience.”

Jingdong Hua, IFC Vice President and Treasurer, said: “A well-functioning capital market is not a luxury; it is a necessity. Deep, vibrant capital markets are essential for a thriving private sector that creates jobs and enables economies to achieve their full potential.”

For more information on the program, visit cmp.milkeninstitute.org.

George Washington University

George Washington University

JSE Clear gets approval from European regulator ESMA

In a step forward for derivatives, clearing and settlement in Africa, the European Securities and Markets Authority (ESMA) has recognized JSE Clear, the derivative central counterparty (CCP) owned by the Johannesburg Stock Exchange. Stephen Maijoor, Chairman of ESMA’s Board of Supervisors, says in a letter to the JSE: “JSE Clear is recognized as a third country CCP under Title III of Chapter 4 of EMIR.”

This means that the European Union’s regulator recognizes JSE Clear as “equivalent” to CCPs in the EU.

The JSE and the Financial Services Board (FSB) worked together closely to obtain EU recognition, says Leila Fourie, Executive Director of the JSE. JSE Clear’s process to securing ESMA recognition was undertaken in conjunction with the FSB, and successfully finished 2 pieces of work:
• Obtain decision from the EU recognizing that South Africa’s legal framework and supervisory practices are equivalent to those contemplated within the EU regulations
• Obtain EU acknowledgement of the appropriateness of our CCP design and risk management processes in terms of the functioning of the market it is meant to serve.

Fourie commented in a press release on 1 Feb: “This achievement is hugely important for the JSE, our regulator the FSB and participants in South Africa’s financial markets. Today’s announcement means that EU-based market participants that clear trades through JSE Clear will be permitted to continue clearing for investors trading on the JSE.”

JSE Clear is required to apply for recognition by ESMA (the European Securities and Markets Authority), as a result of the fact that the CCP has Clearing Members that are either branches or subsidiaries of European registered entities.

Fourie added: “ESMA recognition strengthens our global credibility and fulfils a key requirement for multinational clearing members operating in the local market. Participation from these multinationals helps to distribute the credit, liquidity, operational and legal risk on our market – instead of concentrating this risk in a smaller number of clearing members.”

Central counterparty - graphic from www.economist.com

Central counterparty – graphic from www.economist.com

SA rules are globally relevant
“It is vital for South Africa that its rules are globally relevant and consistent with financial centers such as the EU. This milestone demonstrates that our CCP is robust and meets global standards in promoting financial stability and reducing systemic risk. The recognition of equivalence is a significant indicator of the rigidity of SA’s market infrastructures, and will aid in attracting international flows to our emerging market.

“The JSE is grateful to the FSB for their contribution in obtaining this major milestone for JSE Clear and the South African markets.”

“Clearing” denotes all “post-trade” activities from the time a securities transaction is executed until it is settled. A CCP is an organization that helps to reduce risk and safeguard against losses that could be incurred by a default of a trading participant when trading on the JSE’s markets.

JSE Clear was among the first in the world to be granted QCCP IOSCO status, i.e. marking it out as a “qualifying” CCP in terms established by the Basel Committee on Banking Supervision in July 2012. CPSS-IOSCO is a global standard for risk management aimed at any organization enabling the clearing, settlement and recording of a transaction.

The decision from ESMA follows earlier equivalence determinations for CCPs in Australia, Singapore, Japan and Hong Kong.

The JSE is one of the top 20 exchanges in the world in terms of market capitalization and is a member of the World Federation of Exchanges (WFE) and Association of Futures Markets (AFM). The JSE offers a fully electronic, efficient, secure market with world class regulation, trading and clearing systems, settlement assurance and risk management.

NAMFISA becomes IOSCO associate member

The Namibia Financial Institutions Supervisory Authority (NAMFISA), the regulator of Namibia’s stock exchange and many other organizations, has been accepted as an associate member of the International Organization of Securities Commissions (IOSCO). IOSCO is the leading international body of securities regulators and administrators and its members regulate over 95% of world securities markets.

Kenneth Matomola

Kenneth Matomola


IOSCO is having increasing impact on African regulators, helping them to work together to advance standards in the national securities markets, including working through African regional associations of regulators such as the Committee of Insurance, Securities and Non-Banking Financial Authorities (CISNA) of the Southern African Development Community (SADC).
NAMFISA’s acting CEO, Kenneth Matomola, said attaining IOSCO membership is a significant step in NAMFISA’s quest to become a respected regulator of the financial industry. IOSCO associate membership enables NAMFISA to gain wider exposure and exchange best practices with fellow regulators from all over the world. “This newly-acquired membership sends a strong message that the authority is respected for its ability to regulate the securities market locally. It indeed speaks volumes of NAMFISA’s place in the global securities community,” he observed.
IOSCO has 3 types of membership. Ordinary membership is open to securities commissions and other governmental agencies. Associate membership is available to other agencies that regulate in an environment where there is an existing national regulatory body. Affiliate membership is available to entities which carry out self-regulatory functions, such as stock exchanges.
IOSCO associate membership gives NAMFISA a seat on the IOSCO Presidents Committee. It is also eligible to become a member of IOSCO Growth and Emerging Markets Committee and to participate in the Africa Middle East Regional Committee meetings.
IOSCO ordinary members listed on IOSCO’s website which are based in Africa are: Algeria’s Commission d’Organisation et de Surveillance des Opérations de Bourse; Central Africa regulator Commission de Surveillance du Marché Financier de l’Afrique Centrale (Securities and Exchanges Commission of Central Africa) based in Gabon; Egyptian Financial Supervisory Authority; Ghana’s Securities and Exchanges Commission; Kenya’s Capital Markets Authority; Reserve Bank of Malawi; Mauritius’ Financial Services Commission; Morocco’s Conseil déontologique des valeurs mobilières; Nigeria’s Securities and Exchanges Commission; South Africa’s Financial Services Board; Tanzania’s Capital Markets and Securities Authority; Tunisia’s Conseil du marché financier; Uganda’s Capital Markets Authority; the Conseil regional de l’épargne publique et des marches financiers of the West African Monetary Union, based in Abidjan Côte d’Ivoire; and Zambia’s Securities and Exchange Commission.
The associate African members are: Angola’s Comissao do Mercado de Capitais; Botswana Non-Bank Financial Institutions Regulatory Authority; Namfisa; and Rwanda’s Capital Market Authority.
IOSCO’s objectives are to cooperate to promote high standards of regulation to maintain just, efficient and sound markets; to exchange information on their respective experiences to promote the development of domestic markets; to unite efforts to establish standards and an effective surveillance of international securities transactions; and to provide mutual assistance to promote the integrity of the markets by a rigorous application of the standards and by effective enforcement against offences.

London Stock Exchange allowed to give Hong Kong brokers direct access

The London Stock Exchange has been licensed by Hong Kong’s Securities and Futures Commission to operate as an alternative exchange operator. This means that brokers based in Hong Kong can join as direct members of the LSE and trade for Hong Kong clients in LSE-listed stocks and fixed-income products, provided they meet requirements. They will also get access to the LSE derivatives market, according to this Reuters story.
LSE chief executive Alexander Justham said on Monday (15 June), according to a report in South China Morning Post: “The SFC license is an important move for the London Stock Exchange to further develop our business related to Hong Kong and Chinese companies.”
He expects the new links would encourage more mainland firms to list for trading on the LSE as well as more dim sum bonds, which could create more competition for Hong Kong Exchanges and Clearing. He said: “The London Stock Exchange is not a competitor to Hong Kong but we could have a cooperation relationship.”
Two Hong Kong financial firms are members of the London Stock Exchange through branches in London and 57 mainland Chinese firms are listed. The LSE signed a memorandum of understanding with 4 companies – Agricultural Bank of China, Bank of China, China Construction Bank, and Haitong Securities – to help bring more Chinese firms to list in London.
London is developing as a trading hub for yuan.
The LSE has a list of its 883 members based in various countries around the world.

Woes of Zimbabwe Stock Exchange

($ refers to USD)

The value of shares traded on the recently demutualized Zimbabwe Stock Exchange fell by 22.2% in the first quarter of 2015, compared to the same quarter last year. A story from The Herald newspaper said that turnover to 31 March was $70 million, down from $90 million in the first quarter of 2014. However, the volume of shares traded was up to 586 million from last year’s 306 million for the period.
Trading in January was $16m (down from $63m in 2014), in February $35m ($26m) and in March $19m ($27m). The share bought by foreigners was down to $41m ($64m) over the quarter.

Zimbabwe Stock Exchange liquidity to 30 April (source ZSE website)

Zimbabwe Stock Exchange liquidity to 30 April (source ZSE website)

Meanwhile the exchange seems to be hit by a series of controversies and several companies have delisted, or removed their shares from trading.
The exchange in March was reported in the Herald newspaper that “go-live” date would be 19 June for its new automated trading system, Capizar ATS trading software from Infotech Middle East FZ, part of Infotech Group of Pakistan. This was in terms of a contract signed in March 2014, as reported here last September. However there has been little news of progress and the project missed previous deadlines, including for February.
There has also been criticism of the ZSE’s relocation to Ballantyne Park, a suburb 8.5km from the central business district effective 1 April before the automated trading system was ready. The new office has a smaller trading area. The Herald newspaper reported that parliamentarians and lobby groups had protested and Chairman of the Parliamentary Portfolio Committee on Budget and Finance David Chapfika said that relocating the exchange to Ballantyne Park will mean that small players will be excluded. ZSE interim chairperson Mrs Eve Gadzikwa said the move was necessary because of high rentals.

SECZ investigates ZSE CEO
In February the Herald newspaper reported that the Securities and Exchanges Commission of Zimbabwe (SECZ) was investigating ZSE CEO Alban Chirume after complaints over the suspension of Meikles (see below). He is said to have acted unprocedurally when he suspended Meikles and then unprofessionally when the decision was reversed. There were also complaints after he placed a notice in a newspaper urging investors to exercise caution when dealing with the shares.
If SECZ finds against him, he could be suspended or fired, according to the Herald report. Past CEO Emmanuel Munyukwi, who had been in post for many years, was suspended after an SECZ investigation and subsequently left the ZSE “on mutual agreement”.
According to the Herald: “Away from the Meikles issue, Mr Chirume has faced criticism over the purchase of a residential building in Ballantyne Park, the overshooting of the budget in the purchase of a vehicle and the numerous instances he has undermined the ZSE board and stockbrokers.”
An amendment in 2013 to Zimbabwe’s Securities Act gives the SECZ the power to dissolve the board of a registered securities exchange or dismiss one or more of its members, but only on certain grounds, and subject to appeal. If it dissolves a whole board it can appoint someone to run the exchange but only until a new board is elected in accordance with the articles of association, which should be within 3 months.

Delistings
Paint and chemical products manufacturer, Astra Industries, was the latest to leave at the close of business on 30 April after majority shareholders Kansai Plascon Africa (listed in Tokyo) and Hermistar investment vehicle for Astra management and staff increased their combined holding to 80.2%, breaching the rule of 30% free float, and applied to the ZSE to leave. Regional manufacturer ART Corporation may follow after buying out minorities.
Other recent delistings include TA Holdings and ABC Holdings in February. According to an article in Financial Gazette, 16 companies have delisted since 2007 when the hard currency (USD) economy was adopted – 8 of these chose to delist, and 8 were insolvent. Such is the turmoil in the Zimbabwe economy that many other companies are probably insolvent but it has not been announced yet as local manufacturers with high hard-currency costs and ancient machines cannot compete with imported goods. Meanwhile, another 4 companies are suspended: PG Industries, Cottco (formerly AICO Holdings), Phoenix and Celsy.
The article warns that more delistings are due this year, including Meikles (see below), Dawn Properties, African Sun. It says that companies do not see the benefit in being listed (see bottom of article). They cannot raise money successfully on the bourse due to the liquidity squeeze and shares being listed at a small fraction of their true value, unless money comes from foreign investors, who usually prefer to buy out minorities and delist. The peak had been over 80 listings.
The only new listing was in 2010 when Innscor Africa’s unbundled Padenga Securities and listed it through dividend in specie. The ZSE did particularly better than most parts of the economy during the years of hyperinflation as desperate investors turned to properties, equities or foreign currencies. It slowed dramatically after allowing trading in foreign currencies.
Creating a second-tier exchange for small companies is unlikely to have an overall positive effect on liquidity or the market.

Meikles row
A leading hotel group, Meikles Limited, is suing the ZSE for $50m in damages and is also warning that it may not remain listed. According to a Reuters report in March, Meikles filed papers on 26 February at the High Court, after its shares were suspended from trading for a week in February and then allowed again from 23 February. Meikles said its share price had fallen and its reputation suffered and it is seeking compensation for “potentially irreparable” consequences of its suspension. The ZSE also issued a warning that people should use caution when trading the shares.
Meikles also operates retail including supermarket chain TM Supermarkets (South Africa’s Pick’n’Pay has 49%), Tanganda Tea, the Victoria Falls Hotel and has a stake in Cape Grace Hotel in Cape Town.

New governance?

Meanwhile ZSE governance could change dramatically after the demutualization was completed recently, as reported last week. Some market participants were said to be surprised when stockbrokers ended up with a 68% majority of the company, after Government took 32%. There had been some suggestions of ownership wrangles.
This could mean that stockbrokers can hold a General Meeting and replace directors or otherwise take action on how the company is managed.

Why the stockmarket does not help business
(quoted from Financial Gazette)
Horticultural concern, Interfresh, which delisted on the last day of trading in 2013, highlighted the problems with being listed.
Chief executive officer, Lishon Chipango, said: “At the moment for us there is not too much (gains from listing). If you look at the contextual framework of the stock market, one of the benefits of being listed is to raise capital, but if you raise capital when the shares are so depressed, you are not going to raise that much. So the issue of benefiting if listed maybe down the road. (I) would not be surprised if others followed (us by delisting).
“The other aspect is there is no money in Zimbabwe. All the capital being raised is external. For us, it is not attractive,” Chipango said.
He then mourned over the discounted rate at which the company’s shares were trading.
“The rights issue to raise the US three million dollars (in 2012) caused a dilution of 75 percent because we used stock market valuations. Now if at that time we had raised money using Net Asset Value instead of stock market valuation, the dilution would have been 15 percent. You see why we are running away from the stock market? We are running away from the stock market valuation,” said Chipango.

zimbabwese50502_tradingboard

What are Africa’s pension funds investing into?

Do you agree or disagree with this view? Comments are welcome below

Pension funds in 10 African countries already have $379 billion in assets under management – 85% or $322bn of it based in South Africa – and they continue to grow very fast. That means careful thinking about how to nurture Africa’s savings pool while the need to deploy these resources most productively puts the spotlight on the search for quality investment assets.

For example, Ghana’s pension fund industry reached $2.6bn by Dec 2013 after growing 400% from 2008 to 2014. Nigeria’s industry has tripled in the last 5 years to some $25bn in assets by De 2013, and assets under management are growing at 30% a year. There are 6 million contributors, but many more Nigerians still to sign up pensions.

Pensions have a special place in the capital market as they take a longer-term view and can be patient in the hope of greater returns. Some pension funds, in Africa and elsewhere, argue that pensioners are not just looking at the value of their retirement income but also the quality of their lives, opening the way to carefully chosen investments in infrastructure, healthcare and other benefits which pensioners and their families might enjoy.

What are the African factors driving the growth of pension funds?
• Many countries have set up new regulators and even more are introducing regulations, including forcing more employers to provide pensions. With the new regulatory frameworks come structural changes such as the need for professional third party asset managers
• Changing demographics: The age group over 60 years is the most rapidly increasing, according to some research
• It’s a virtuous circle, many Africans want savings opportunities. If pension funds produce results, and are well run and good at communicating, people will respond.

The growth is only beginning. So far only 5%-10% of the population in sub-Saharan Africa are thought to be covered by pension funds and 80% in North Africa. Pension funds are still tiny in comparison to gross domestic product (GDP), which in turn is growing fast in many African countries – for example pension funds are about 5% of GDP in Nigeria, compared to 170% of GDP in Netherlands, 131% in UK and 113% in America.

Southern Africa is generally better served: Namibia has some $10bn in pension assets representing 80% of GDP and Botswana $6bn or 42% of GDP. The biggest pension schemes are usually government and social-security funds as well as local government and parastatal funds (such as Eskom in South Africa), as well as those of big corporations and multinationals.

Economist Charles Robertson of Renaissance Capital says conservatively that pension funds in the 6 largest sub-Saharan African markets will grow to $622bn in assets by 2020 and to $7.3 trillion by 2050.

What to invest in?

The challenge is how to invest the capital productively. Are Africa’s entrepreneurs, corporate finance and investment banking houses and capital markets rising to the challenge of bringing a a strong pipeline of investment-ready projects to keep up demand for capital?

Capital markets need to offer liquidity and transparency both to channel the foreign capital looking for African growth opportunities for their portfolios and now for domestic funds too. Liquidity can be a key problem, even in Africa’s world-beating Johannesburg Stock Exchange, where the Government Employees Pension Fund (GEPF) is thought to account for 13% of market capitalization and to be the country’s biggest investor in commercial property.

Big funds in small other Southern African capital market swamps can be like hungry hippos, snapping up promising new investments as they surface. Even if they feel satisfied from a good run of success on some of these investments, they can hardly disgorge them back into the liquidity pool for other traders because of the gnawing fear they would not find other local investments to fill their bulging portfolios.

Others share the worry. Eyamba Nzekwu of Nigeria’s Pencom was reported as saying: “Savings are growing much faster than products are being brought to the market to absorb these funds”. Pension fund growth is thought to have contributed to a 79% surge in Ghana stock market in 2013 as funds chased too few investments.

Regulators should encourage the fund-managers to upgrade skills fast to be more proactive in picking and trading stocks and African fixed income. They should also widen the space in the interests of helping the markets and the funds to grow through liquidity. This means, for instance instance, urgently relooking restrictions on cross-border investments, including into other African markets.

Private equity and infrastructure

The pension funds provide a huge opportunity for alternative assets, especially private equity. According to research by the African Development Bank’s Making Finance Work for Africa and the Commonwealth Secretariat, African pension funds are estimated to have invested some $3.8bn-$5.7bn in private equity and to have scope to invest another $29bn (see table below). Many countries are passing new regulations to allow investment into private equity and other unlisted investments. Funds have been experimenting – sometimes disastrously – with small and medium enterprise and other developmental investments.

table50313_pensions

International private equity fund managers such as Helios and LeapFrog have also seen the future, making investment in pension fund providers – Helios took equity in Nigeria’s ARM Pension Fund Managers and LeapFrog into Ghana’s Petra Trust.

Africa has huge need for infrastructure finance and pension funds could be the ideal pool of patient capital but more work needs to be done to increase the supply of investable projects and to increase capacity of pension funds to invest in projects directly or through infrastructure fund managers.

Savings are good for growth, provided there are productive assets for them to go into. Africa’s savings are rising, often driven by regulation, and international interest has been strong for years. Can Africa’s entrepreneurs, their advisors, private equity funds and the capital markets institutions rise to the challenge of building a big enough pipeline of great investment opportunities suited to the needs of these investors?

For more reading:
This article is heavily based on work by: Ashiagbor, David, Nadiya Satyamurthy, Mike Casey and Joevas Asare (2014). “Pension Funds and Private Equity: Unlocking Africa’s Potential”. Making Finance Work for Africa, Emerging Markets Private Equity Association. London. Commonwealth Secretariat. Available through MFW4A.
Another book is by Robertson, Charles (2012). “The Fastest Billion: The Story Behind Africa’s Economic Revolution”. Renaissance Capital. Read more here or buy it on Amazon (link brings revenue to this site).
Other articles are at The Economist on Nigeria’s pensions, African Business and Wall Street Journal.