Archive for the 'Governance' Category

London Stock Exchange – blue blood in the City after shoot out

“Quentin Tarantino couldn’t have written it better. After weeks of everyone at the London Stock Exchange pointing guns at each other, Reservoir Dogs-style, on Wednesday they all pulled the trigger.

“The final scene: Xavier Rolet takes one to the head, Donald Brydon reels from a gutshot, hedge funder Sir Chris Hohn makes a break for it, only to meet a hail of bullets offstage.

“A gory, unedifying, end to a film that, though being great box office, leaves all the cast bloodied.

“Rolet looks truculent in the extreme. Despite his “what, me?” statement today condemning the “unwelcome publicity” around his departure, it’s hard to believe he couldn’t have stopped all this weeks ago by having a quiet word with Hohn — through intermediaries if the gagging order on him prevented direct contact.

“Clearly, and understandably, he was miffed about getting the boot. But by letting the row run for so long, he has self-immolated a successful next career in City chairmanships. Who would hire him now? The manner of his ending will overshadow his extraordinary achievements turning the LSE around.”

This is columnist Jim Armitage in yesterday’s Evening Standard in London.

“This whole film would be fun were it not for the fact that the LSE is weakened just as it needs to be at its strongest.

“The Stock Exchange is about as essential to the City’s future financial dominance as you can get, and with Brexit coming, it has rarely been so challenged by EU rivals.

“The only character to emerge with reputation enhanced, is Mark Carney. Back in the day, the Governor of the Bank of England could order companies into line with a raise of the eyebrow. Carney lifted his beetle brow yesterday, declaring himself “mystified” by the whole affair. Within 24 hours, the squabble was over.”

The announcement from the London Stock Exchange Group came yesterday. Xavier Rolet said in the statement: “Since the announcement of my future departure on 19 October, ‎there has been a great deal of unwelcome publicity, which has not been helpful to the Company. At the request of the Board, I have agreed to step down as CEO with immediate effect. I will not be returning to the office of CEO or director under any circumstances. I am proud of what we have achieved during the past eight and a half years.”

CFO David Warren took over on £700,000 salary as interim, after 5 years at LSE and previously 9 years as CFO at NASDAQ. The Chairman of the Board, Donald Brydon, announced he would not seek a new term at the London Stock Exchange Group AGM in 2019.

Brydon paid tribute to “Xavier’s immense – indeed transformative – contribution to the business.” According to one newspaper report in City AM, over 9 years: “Rolet is widely acknowledged to have driven the LSE from a declining, if venerable, City stalwart to a major player on the international scene through acquisitions”,

The Financial Times has a great article on the drama including charts of LSE mergers and acquisitions in the top rank of world stock exchanges since 2005, and changes in the LSE share price compared to that of other exchanges.

The row started on 19 October when it was announced that the Board was looking for a successor for Rolet to leave by the end of December 2018 . That follows Rolet saying he would leave if a $13.8bn merger with Deutche Börse did not succeed – it was blocked by regulators – but then saying he would stay indefinitely. Activist shareholder Sir Chris Hohn of the Children’s Investment Fund (TCI) called for a shareholder meeting to discuss the dismissal in view of Rolet’s excellent track record.

Commentators did not dispute the track record, where Rolet transformed the institution which is at the heart of the City of London’s standing. On 4 Nov, columnist Anthony Hilton wrote this insightful defence of corporate governance and the foolhardiness of overruling the authority of the Board. “The chief executive is accountable to the board, and the board has a duty to tell him or her when it is time to go. What makes it so tough is that the problem invariably lies not with poor-quality bosses, who are relatively easy to show the door; the challenge is reining in those who have done well, those who have shown the vision and skill to move the business to a new and altogether higher level and who have in the process built a significant fan club. But it needs to be done. A major reason why good companies fail is that boards fail to exercise proper control over a successful leader who evolves into an over-mighty chief executive, and are then powerless when he overreaches himself. The danger is hubris.”

According to the FT the row is not yet over. It says the share price of LSE is down 2% since the October announcement, while that of Deutsche Börse is up more than 12%. Hong Kong Exchanges and Clearing is the other big winner, up nearly 8&, followed by CME (over 6%). The LSE share price has had a great run under Rolet.

Rolet is on “gardening leave” for the next 12 months on his £800,000 salary, although he tweeted yesterday morning “I doubt if my wife would tolerate me meddling with her vineyard although I do sample the product every now and then”. According to the news his total payout including annual bonus, deferred bonuses and long-term incentives could be up to £13m.

On 28 Nov, Bank of England Governor Mark Carney, said he was “mystified by the debate” but called for “clarity… as soon as possible”. According to City AM newspaper he said: “I can’t envision a circumstance where the CEO [chief executive] stays on beyond the agreed period.”

The Bank, which regulates the London Stock Exchange as owner of LCH (clearing house) had been informed of the LSE’s plans to appoint a new head before Rolet publicly announced his retirement in October, and has been kept updated on progress, Carney said.

Carney hailed Rolet’s “extraordinary contribution” to the LSE.

UK regulator accused of dropping standards to woo $2 trillion listing

Investment institutions are protesting moves by the UK capital markets regulator, the Financial Conduct Authority, to alter listing standards to accommodate a potential $2 trillion listing on the London Stock Exchange. Meanwhile rumours are growing that Saudi Aramco may be dropping its plans for a £1.5bn initial public offer on the New York, London or Tokyo Stock Exchange in addition to the Tadawul (Saudi Stock Exchange).

According to this article in the Financial Times, a trend towards “uber compliance” for listed securities means Aramco is thinking of selling shares to sovereign wealth funds, possibly led by China, as an alternative to a public listing which would have been the world’s largest float.

On 15 October, Aramco said the giant listing is still on: ““All listing venues under review for optimal decision, IPO process is on track for 2018”.

Plans for a giant £1.5bn ($2bn) initial public offering of only 5% of Aramco’s capital are a key part of Saudi Arabia’s Vision 2030, which plans to wean the economy off reliance on oil, where it made up 90% of public revenues until 2014. However, in the short term it may signal Saudi intentions to use price-fixing cartel the Organization of Petroleum Exporting Countries (OPEC) to push up oil prices and boost the valuation.

Outgoing LSE CEO Xavier Rolet accompanied British Prime Minister Theresa May for a visit to Aramco in April, while Andrew Bailey, chief executive of the FCA, agreed the regulator had met the potential listing candidate before a consultation on revising the listing standards. Many observers think there is political pressure on FCA and LSE to win the listing from New York and prove that London is still competitive as Brexit uncertainty and economic damage impacts UK.

Consultation on the FCA’s new listing rules closed on Friday 13 October. It would be the world’s largest float.

According to writer Nils Pratley in The Guardian: “Furious fund managers sense a bad case of a regulator planning to lower standards to suit ministers’ short-term desire to persuade Aramco to float in London rather than New York.

“The investors’ objection is straightforward: why on earth would we want to create a ‘premium’ listing category for state-owned companies while not enforcing normal investor protections?

“Under the FCA’s proposal, the likes of Aramco would be allowed to ignore some basic principles. They would not have to get approval from outside shareholders for transactions with the state. They would not have to give independent shareholders a vote on who should serve as independent directors.

“There clearly could be a place for such companies in London, but you would hardly award ‘premium’ status, a label that is meant to indicate the highest governance protections. The regulatory regime would look like a pushover, which may succeed in drumming up some short-term business but could seriously damage London’s status as a good place to invest.”

On 18 October, the world’s biggest wealth fund warned the FCA that the listing changes would be a “step back”, according to an article in City AM. Norges Bank Investmnet Management, part of the Norwegian Central bank which manages assets on behalf of Norway’s $1trn fund, which has $44bn invested in LSE companies, wrote on 13 October to FCA:

“Ultimately, investors expect today’s high standards of shareholder protection to apply to the premium listing category, whether controlled by a sovereign state or private investors. We fear that relaxing these rules would reduce the voice of minority investors and undermine the independence of the board.”

NBIM said the changes would be a “step back” in terms of investor protection, especially for minority shareholders, and would threaten the London Stock Exchange’s standing as a best in class corporate governance framework: “We believe the FCA should consider a more balanced approach that takes into consideration the interests of all stakeholders in the listing environment.” Other protests about relaxing the listing rules have come from a wide range of institutions, including the Institute of Directors and investor group the International Corporate Governance Network which said the plans were “fundamentally flawed” and increased risk. The Investment Association boss Chris Cummings said the change: “could impact on London’s reputation and future as one of the world’s leading financial centres”.

FCA’s Bailey had told Parliament that people would not need to invest in the new listing if they did not like the governance. According to this article , he wrote: “We do not think protections for investors will be weakened. Plainly, absent the new category, sovereign-controlled companies would be unable to choose a premium listing; they would therefore not be bound by any of the premium listing requirements that might otherwise offer additional protection for investors.”

Bailey said some criticism of the proposal left the “incorrect impression that the premium listing is monolithic in form, and therefore, that any issuer included in that category must also be included in the main FTSE UK index”. Financial services advocacy group The CityUK supported the FCA’s “open-minded approach to regulatory change”.

Ashley Hamilton Claxton, corporate governance manager at Royal London Asset Management, said it will be “bad news” for London if the proposals are put in place: “It looks like the FCA is consulting on amending the existing listing rules to accommodate the peculiarities of one company, which is not a very effective strategy for regulating the market as a whole. If the proposals in this consultation document are implemented, it will be bad news for London and will reverse the progress we have made in recent years to uphold strong governance and protect minority shareholders.”

According to the Financial Times: “A market regulator that makes transparent and fair rules, respecting both property rights and investor choice, will attract business in the long run. If, on the other hand, attracting business becomes a short-term goal, and rules are tailored to land big deals, regulation becomes marketing, and the long-term outlook becomes much less attractive.”

Saudi Aramco says its 2018 listing is on track (photo Reuters/Ali Jarekji)

Dar es Salaam Stock Exchange IPO nearly 5x oversubscribed

Total bids for the initial public offer (IPO) of shares in the Dar es Salaam Stock Exchange PLC were TZS35.8 billion ($16.4 million). This is 4.8 times the offered amount of TZS7.5bn ($3.4m) in the IPO which ran from 16 May until 3 June. Next steps include the DSE to refund excess bids after exercising its “green shoe” option, which allows up to 10% extra, and then to self-list on 12 July on its own Main Investment Market Segment under the ticker “DSE”.
According to the DSE announcement: “The planned self-listing is in line with the global trend and practice for exchanges, and is aimed at achieving good corporate governance practices, efficiency and effectiveness of the DSE and further strengthen its strategic and operational practices.” The DSE said in its prospectus it planned to use IPO proceeds to enhance its core-operating system, introduce new products and services and for “strategic and operational purposes”.

Moremi Marwa of DSE and UK Secretary of State for International Development open trading on the London Stock Exchange. Credit: London Stock Exchange

2014: Moremi Marwa of DSE and UK Secretary of State for International Development open trading on the London Stock Exchange. Photo: London Stock Exchange

DSE management are doing an excellent job and there is great potential for the exchange to keep serving the supply of long-term risk capital to one of Africa’s fastest-growing economies. It is sticking closely to its offer timetable and has announced results on time on 16 June. Next is to credit accounts with shares at the central securities depository (CSD) on 24 June and process the refund cheques on 30 June before the self-listing and trading of fully-paid DSE shares on 12 July.
The receiving bank for the DSE offer, as with many Tanzanian IPOs, was local leader CRDB. The lead transaction manager is Orbit Securities Company Limited which said interest was very strong. During the IPO the shares could also be bought using Tanzania’s MAXMALIPO payment gateway or by dialling *150*36# on a Tanzanian mobile phone.
According to an earlier statement by CEO Moremi Marwa: “Over the past few years the DSE has achieved significant milestones, notably:
• Compounded annual growth rate of 110% since 2010 for market capitalization to TZS21trn by 30 March 2016
• Compounded annual growth rate of 56% since 2010 for liquidity to an aggregate average turnover of over TZS800bn per annum
• Introduction of the Enterprise Growth Market (EGM) segment and the increase of listings of both equity and bonds
• Introduction of mobile trading on the DSE trading, depository and settlement platform
• Increased financial independence sustainability and profitability.
As at 30 March 2016 the Exchange had 23 listed equities and 3 outstanding corporate bonds. There are also Government bonds, worth about TZS 4.6trn listed on the exchange, making the DSE the second largest exchange in the East African region.”
According to the prospectus, 3% of shares were reserved for DSE employees and 15% for a capital markets development fund.
Previously DSE was a mutual company limited by guarantee with no shareholders and no capital. The 20 institutions that acted as guarantors – including 8 of the 11 stockbroking firms currently trading – agreed to be issued with 1 share each with nominal value TZS400 by 29 June 2015. It was part of the process as the bourse restructured and changed from Dar es Salaam Stock Exchange Ltd to the Dar es Salaam Stock Exchange Public Ltd Company (Plc).
Among recent changes at the dynamic exchange are
• Migration to the new efficient automated trading system and central depository system (2013), supplied by South Africa’s STT (Securities and Trading Technology system)
• Reduction of settlement cycle from 5 days to 3 days for equities and 3 days to 1 day for bonds in line with international standards (2013)
• The Capital Markets & Securities Authority (CMSA) put in place the enabling regulatory framework and licensed the NOMADs to create a framework for a new Enterprise Growth Market segment of the DSE which was launched in 2013. Since the five companies have listed on the EGM
• Interlinking the exchange’s central depository system to the national payment system (2014)
• Deployment of ATS on the wide area network and start of remote trading by brokers (2014)
• Introduction of the regulatory framework and subsequent use of mobile phone technology in IPOs (equity and debt) and secondary trading (August 2015)
• Limits on foreign investment were recently lifted. There is also increasingly close cooperation in the exciting East African region, including installation of an interconnectivity hub for routing trading order between the exchanges.
New products which the CMSA and DSE are developing include real-estate investment trust (REIT), futures and derivatives, exchange-traded funds (ETFs), closed end collective investment schemes and municipal bonds.
Your author was honoured to be team leader of the CAPMEX/Wiener Börse AG team that wrote the demutualization strategy.

Source Dar es Salaam Stock Exchange

Source Dar es Salaam Stock Exchange

Putting aside billions – Africa’s sovereign wealth funds

Sovereign wealth funds are sprouting across Africa – 15 countries have created funds in the last 20 years, managing a total of $159bn at the end of September 2014.

Angola, Nigeria, Senegal and Ghana all started funds in the last 3 years and and funds are discussed, expected or being born in: Kenya, Liberia, Mauritius, Mozambique, Namibia, Niger, Uganda, Sierra Leone, South Sudan, Tanzania, Uganda, Zambia and Zimbabwe.

A key research event at Chatham House in September 2014 identified some principles of African SWF Demand, Development and Delivery.

Governance for sovereign wealth funds

Funds with strict rules should limit politicians’ discretion and they can ensure that money is earmarked for public investments. For instance Ghana has a rule that oil revenues must fund “development-related expenditures”. In many cases this funding can be done through the governments’ budget and oversight systems, which otherwise funds might undermine and bypass.

A key target is to ring-fence resource revenues to prevent mismanagement or corruption. Organizations such as the Extractive Industries Transparency Initiative had campaigned about billions of dollars being siphoned off oil and gas revenues in countries such as Nigeria and Angola, and some $10bn withdrawn from Russia’s National Welfare Fund without justification. Resource funds also offer governments greater autonomy, power and political leverage.

Sovereign wealth funds debate at Chatham House (source: Chatham House)

Sovereign wealth funds debate at Chatham House (source: Chatham House)

Africa’s new arrivals – learning from the past

Ghana has long exported gold and cocoa but in 2007 was delighted to discover large petroleum reserves. Mona Helen Quartey, Deputy Minister of Finance, said they wanted to avoid the pitfalls and asked for advice before opting for wide consultation and accountability: “We held a national forum and did a survey in all 10 regions to get the opinions of Ghanaians on how to manage petroleum revenues; it was a very, very broad consultation. The survey had thematic areas such as: revenue collection and allocation; how much to spend and how much to save; managing the fund and transparency and accountability.”

The resulting Petroleum Revenue Management Act 2011 established the Ghana Stabilization Fund which only allows withdrawals when oil revenues are low, and the Ghana Heritage Fund to provide an endowment for future generations when petroleum reserves are depleted and withdrawals only after 15-year intervals. The funds were worth almost $450m in June, according to the Deputy Minister.

Ghana is a great example of independent oversight, according to Andrew Bauer, Economic Analyst with the Natural Resource Governance Institute (NRGI): “There is public interest and an accountability committee which includes chiefs, journalists and accountants to report twice a year on whether fund rules are being followed.”

Victoria Barbary, Director of Institutional Investor’s Sovereign Wealth Center, adds plaudits: “The imperative is to think about strength of institutions, when there is a strong state, legislation and building by consensus. Ghana has done exceptionally well, making sure there is that trust element in managing money.”

Existing and Emerging SWFs in Africa. Source: Sovereign Wealth Center

Existing and Emerging SWFs in Africa. Source: Sovereign Wealth Center

New arrivals – Angola and Nigeria
Other new arrivals include Fundo Soberano de Angola, set up with an initial endowment of $5bn from oil. It has signed up to the Santiago Principles for SWF governance, and aims to diversify across various infrastructure and asset classes with one third for interest-bearing assets, a dedicated hotel fund and plans for infrastructure projects across sub-Saharan Africa. According to its chairman, José Filomeno de Sousa dos Santos, the Ministry of Finance has set up boards of directors and supervisors to look at detailed quarterly reports including bank statements, and an audit has recently been done by Deloitte.

Nigerian Sovereign Investment Authority (NSIA) set up by an Act to invest surplus income from excess hydrocarbon reserves, including the savings between budgeted and actual oil prices. It started with $1bn and has three funds: Stabilization fund, Future generations fund for long-term investments, and Nigerian infrastructure fund.

Barbary says public confidence and trust will be key for new funds: “In countries across Africa strong institutions are lacking and there is lack of public trust in politicians to manage the money well and to the benefit of the whole polity. Resource-rich countries in Africa that have just come out of civil war, for instance Liberia and Sierra Leone, are thinking of setting up natural resource funds.” However, Tanzania is working closely with the NRGI to create a resource charter and educate policy-makers and non-governmental organizations, building public accountability and trust.

Expert advice is available from many sources, including the World Bank and a team from the US Treasury which built its skills on managing US assets and then decided to share the learning. Africans are increasingly skilled at managing their financial sector, whether as diaspora members returning after star turns in the world’s financial institutions or as students of professional finance qualifications.

These skills will be particularly important when funds invest domestically, for instance trying to emulate successes of Singapore and Kuwait in bringing high-paying technology and other jobs into the country, according to Michael Maduell of the Sovereign Wealth Fund Institute. Infrastructure investment in Africa also presents challenges, although the field is developing fast. The NRGI’s Bauer warns: “It takes as much capacity to manage the manager as to manage the money.”

World Bank economist Håvard Halland says there is a risk of political meddling when fund managers are asked to trade off financial and social returns on parts of their domestic portfolios. This could compromise the independence of the fund management, the wealth objectives of the fund as well as the quality of investments. To reduce these risks, the fund should invest only in minority stakes in partnerships with qualified private investors or foreign SWFs, who can also bring additional expertise. “Only a narrow range of infrastructure investments are appropriate for SWFs under these constraints. Investments that do not have a commercial or quasi-commercial return, such as schools and hospitals, should go through the government budget. Rates of return on domestic investments need to be benchmarked against the return on foreign assets with no fixed allocation to domestic investments, and possibly allowing for a clearly defined markdown from the benchmark rate only if the investment has significant positive externalities”.

African SWFs are likely to grow fast in the short-term as countries that have oil and gas are keen to get it out and sold while world prices stay relatively high, as longer-term prospects are not good.

The funds are already a key force in building Africa’s economies, infrastructure and even capital markets. Getting their objectives, management, governance and investments right is vital for the welfare of future African generations.

Annex 1 – 6 steps to good governance and how Africa’s sovereign wealth funds measure up

Africans should be asking these questions about their sovereign wealth funds (SWF):

1. Set clear fund objectives: Examples include saving for future generation, stabilizing the budget, earmarking natural resource revenue for development priorities.

2. Establish fiscal rules for deposits and withdrawals that align with the objectives. Botswana avoids such rules. Where funds are allowed to invest domestically, including in social spending, they should work with national budget processes. Angola’s sovereign fund can bypass normal budgetary procedures.

3. Establish investment rules, There have been notorious problems worldwide, one of Africa’s worst examples has been the Libyan Investment Authority under “brother leader” Gadhafi, when his son Saif al-Islam Gadhafi had almost sole discretion to manage approximately $65bn and billions went to close acquaintances. In October 2014 LIA went to the High Court in UK to sue Goldman Sachs for $1bn for nine 2008 transactions that were worthless by 2011, alleging Goldman exploited the fund’s limited financial experience but made $350m profit, claims which Goldman denies. Chad’s fund was repurposed for military spending. Some funds such as Botswana block domestic investment, Angola is among others which see it as core.

4. Clarify a division of responsibilities between the ultimate authority over the fund, the fund manager, the operational manager (day-to-day), and set and enforce ethical and conflict- of-interest standards.

5. Require regular and extensive disclosures of key information and audits. Fund transparency is increasing, for example the rigorous transparency requirements of the Sao Tome and Principe National Oil Account and public scrutiny of its operations. By contrast, Botswana is still “opaque” despite signing the Santiago Principles and both Equatorial Guinea, another signatory, and Libya “keep nearly all information about their activities secret”.

6. Establish strong independent oversight bodies to monitor fund behaviour and enforce the rules

(Source, Natural Resource Governance Institute, New York)

Annex 2 – What are sovereign wealth funds?

The Sovereign Wealth Fund Institute of Las Vegas, USA defines SWF as “a state-owned investment fund or entity that is commonly established from balance of payments surpluses, official foreign currency operations, the proceeds of privatizations, governmental transfer payments, fiscal surpluses, and/or receipts resulting from resource exports”. That leaves out central banks’ reserves for balance-of-payments or monetary-policy, state-owned enterprises (SOEs), pension funds for government employees and assets to benefit individuals.

The term “sovereign wealth fund” has been around since 2005 when it was invented by Andrew Rozanov, then of State Street Global Advisors. However, there have been natural-resource funds since 1876 and the first SWF was the Kuwait Investment Fund in 1953.

Since then they have grown fast – total assets under management were $895bn in 2005, while an October 2014 count by the SWF Institute puts them at $6.8 trillion. Global giants are Norway’s Government Pension Fund with $893bn and Abu Dhabi Investment Authority with $773bn. Four of the top nine funds are Chinese, with $1.8 trillion between them. (Global stock market capitalization in 2013 was $62.6 trillion). The funds hit the global news agenda after the 2008 financial crisis as high oil prices helped increase some states’ spending power and funds snapped up high-profile investments including top financial firms.

SWFs have objectives such as helping to smooth expenditures when oil, gas and diamond revenues are volatile and helping governments set realistic budgets. They help governments avoid overspend when prices are high, for instance on legacy projects such as grandiose concert halls, or running out of cash when oil prices fall, leaving projects such as roads half-built. Funds can help governments save for the future in good years, especially useful if the governments are not good at spending well. Funds can also help countries ward off “Dutch disease” by keeping some revenues in foreign currencies.

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.

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.


New laws pave route to Angolan securities exchange

Laws have been approved in Angola to regulate the future securities exchange for equity and debt. The Capital Markets Commission or Commissao do Mercado de Capitais (CMC) says that it plans to open a secondary debt market next year and this will pave the way for a securities exchange in 2016.
The regulator announced the new laws on 18 October. According to news story by Reuters, Archer Mangueira, head of the CMC, said the laws were published by presidential decree: “With these laws, Angola creates the conditions for the securities markets to be able to operate. The first securities market operations in Angola will be done with public debt paper, an instrument which help satisfy the State’s financing needs and also remunerates people and companies that invest in it.”
The securities exchange has been in the pipeline for more than a decade and most recently Bloomberg news reported after an interview on 28 June with Mangueira that the launch which in April had been had been announced as 2015, would now be only in 2016. The regulator is also working on plans for trading futures and commodities, including standardized contracts for certain financial products.
Treasury bills already bought and sold among financial institutions. Mangueira said in June that a public market for trading Angolan fixed-income notes had been planned to start by the end of September, using electronic trading. The aim is to help develop a yield curve. However, the secondary market for bonds was delayed to the first quarter of 2014, and Mangueira cautioned: “We might make some adjustments based on whether the legal instruments are fully developed and implemented, technological infrastructure is in place, and employees are trained.”
The CMC has signed an agreement with the London Stock Exchange to train staff.
In August 2012 Angola sold $1 billion of USD-denominated Eurobonds to selected investors maturing in 2019 at a yield of 7%, according to Bloomberg. Earlier this year ACMN reported that it would issue another $1bn-$bn but in October the Africa Report said the issue was postponed until 2014.

Fast-growing economy fuelled by oil
Angola is a major African economy, the second-largest oil producer after Nigeria and endowed with massive agricultural and mineral wealth, including diamonds that fuelled civil war which lasted from 1975-2002. Since peace in 2002 it has moved rapidly to rebuild but still has a poor record on transparency and this has held back some investment and business growth. Reuters describes it as “one of Africa’s fastest-growing, but most impenetrable economies”. Growth was forecast at 7.1% in 2013, down from 7.4% in 2012 with three quarters of budget revenue coming from crude oil.
Suitable listings have been identified including banks, telecoms and retail businesses in private ownership. Bloomberg said that in April Mangueira had expected that the stock exchange would have a market value of 10% of gross domestic product within 18 months of its start up. Expected listings would include the largest banks including Banco Angolano de Investimentos SA and Banco de Poupanca e Credito SA, as well as mobile-phone companies Unitel SA and Movicel Telecomunicacoes Lda.
Leading Angolan companies dominate many key sectors, often linked to senior political and other leaders, and Reuters says “investors and analysts have questioned whether the Angolan companies that dominate their sectors are in a position to fulfil international standard criteria on ownership disclosure, auditing and reporting of accounts, and corporate governance”. According to Bloomberg Angola is ranked 157th out of 176 countries on Transparency International’s 2012 Corruption Perceptions Index.

African Corporate Governance Network launched

Today (16 Oct) saw the launch of the African Corporate Governance Network in Mauritius. So far Kenya, Malawi, Mauritius, Mozambique, Nigeria, South Africa, Tanzania, Zambia and Zimbabwe are involved. It is an initiative of the Institute of Directors. The aim is to build capacity in and support best corporate governance practices at African institutions, supporting development of the private and public sectors.
The launch will include signing of the ACGN constitution, which will bind the member countries.
Jane Valls, CEO of the Mauritius Institute of Directors, said in a press release: “The ACGN is an important initiative for Africa. I am confident that the ACGN will soon find its place as one of the major organizations promoting best practices in Africa”.
A recent report on Corporate governance, value creation and growth: The bridge between finance and enterprise, 2012 (available at ) by the Organization for Economic Cooperation and Development (OECD), found that a robust framework of corporate governance rules and regulations provides investors with confidence, and entrepreneurs with the incentives to develop their businesses. The OECD report emphasizes that developing and emerging markets, in particular, benefit from strong governance as companies gain better access to external capital required to realise their potential for economic growth.
Chinyere Almona, Head of IFC Africa Corporate Governance Programme, said: “Strong international practices in corporate governance are an important factor in attracting investment. Through the ACGN, IFC encourages the adoption of good corporate governance practices across Africa to increase investor confidence, boost private sector development, and create sustainable businesses that will provide employment and reduce poverty.”
Speaking after the meeting was Derek Browne, COO of the NEPAD Business Foundation who said, “Corporate governance plays a crucial role in assuring investors that there are good management teams who act ethically and in the best interests of stakeholders.” For Africa, this is important as we try to court more capital for business. The ACGN initiative will prove important in consolidating efforts and accelerating the sharing of best practices which can increase the utility of consensus standards of corporate governance”.
NEPAD Business Foundation has provided the Secretariat to the ACGN.The ACGN launch is sponsored by the IFC Africa Corporate Governance Programme, based in Nigeria. Standard Bank ( and the Association of Chartered Certified Accountants ( have also backed individual meetings.
For more information see the press releases from NEPAD Business Foundation (undated)and IFC (broken link)

Nairobi Securities Exchange launches growth board for SMEs

This week the Nairobi Securities Exchange ( has joined the rush into providing boards for small and medium enterprises (SMEs) with the launch on 22 January of the Growth Enterprise Market Segment (GEMS).
GEMS is designed to offer a regulatory and trading environment to meet the need of SMEs. The aim is that they can raise good amounts of initial and ongoing capital. They should also be able to boost their profile and enjoy more liquidity in their shares.
Chairman of NSE Eddy Njoroge said in a NSE press release: “The establishment of a GEMS market in Kenya will pave way for the listing of small and medium-sized enterprises on the exchange, which is a major driver of our country’s economy.” He also thanked the regulator for “showing commitment and support” in establishing GEMS. CEO Peter Mwangi added that the establishment of this market will become a fundamental contributor to the stability of Kenya’s overall financial system.
Kenya has a good community of experienced advisers to support companies who wish to list. The key intermediaries are the Nominated Advisors (NOMADs), who will assist companies to list on GEMS and to comply with good corporate governance and global best practices. Other professionals with background on GEMS include brokers, accountants and lawyers.
The NSE plans to offer a directors’ course on corporate governance to the directors of the “mid cap.” Companies, meaning those with middle ranges of market capitalization.
The NSE believes that SMEs are a key sector for achieving Kenya’s Vision 2030 and the United Nations Millennium Development Goals. Commenting during the launch,.
Eligibility criteria for companies wishing to list include: Being a registered public company; minimum fully paid-up capital of KES 10 million ($114,400); at least 100,000 shares in issue and free transferability of shares; adequate working capital and solvency; track record of operations for at least a year but no profitability record needed; 5 directors, of which a third should be non-executive; directors with no bankruptcy, fraud, criminal offence or financial misconduct proceedings for 2 years; competent board and senior management – at least 1 year experience in the business; A third of the board members must have completed Directors Induction Programme and the rest have to complete it within 6 months of listing; all issued shares to be immobilized; 15% of the shares must be available for trading & held by at least 25 independent shareholders within 3 months of listing; Controlling shareholders lock in for 24 months; NOMAD appointed by written contract.
The NSE is Kenya’s main securities exchange, offering listing and trading in equities and debt.