Talking to executives of listed companies in Zimbabwe provides an interesting insight into how hyperinflation has destroyed shareholder bases.
Most of Zimbabwe’s listed companies are now extreme penny stocks with about 230,000 minority shareholders (estimates of the total number of shareholders in all counters) holding up to a few thousand shares each, which, in value terms, amount to less than a few hundred (tens) dollars. Of 74 listed companies, only two counters trade above US$1. Twenty percent of counters trade at a value of less than US $0.01. These shares are owned by Zimbabwe’s lost, or “ghost” shareholders. Ghost because the cost of communicating with them is scary. And hidden.
The holding cost to owning shares for both shareholders and listed companies is not economically viable. It’s also not desirable for listed companies to have thousands of faceless shareholders with immaterial shareholding values. In the USA if your share price falls below a US$ you are de-listed. Zimbabwe is desperate for capital and listed companies shouldn’t expect to raise the capital they need from the man in the street. He was fleeced long time back – savings and all – by hyper-inflation. His shares are worth nothing.
But is there hope on the horizon? Foreigners complain at the lack of liquidity in African markets and the current situation in Zimbabwe might be an opportunity to pick up some stock. In the face of indigenisation legislation (now actual law) I guess Zimbabwe’s risk profile just got higher, so only the brave will be going there. Zimbabwe’s companies looking for capital are going to have to employ low cost, highly efficient means of extracting every ounce of capital from the market.
Zimbabwe’s companies legislation provides that shareholder reports and proxy material be delivered physically to shareholders. Most companies are ignoring this and merely informing the Zimbabwe Stock Exchange that they are not printing annual reports. There are only a few incidents of shareholders registering their objections to this practice, with none that I know of complaining of financial loss as a result. There is no litigation as far as I am aware. Yet.
A shareholder has a legal right to postpone an AGM where notice was inadequately given or proxy materials were not delivered. I can foresee a time in the future, when mergers, acquisitions, rights offers and other shareholder actions do not follow the law strictly and someone digs their heals in to the greater detriment to the prospects of a company. This is high risk stuff and companies should consider using their websites as regulatory approved disclosure tools to mitigate shareholder actions of this nature. Built into this would be indemnification by the ZSE on any liabilities associated with the communication practices the ZSE endorses.