The Zimbabwe Stock Exchange completed its demutualization last month (March) and is now a fully fledged private company. It plans to issue up to 50% of its shares to new shareholders, according to reports.
Company registration was completed earlier in the month and Finance Minister Patrick Chinamasa issued share certificates at a ceremony on 26 March. According to a report by Xinhua news, the Minister said demutualization transformed the bourse from a statutory body into a viable public company: “The main crux of demutualization is separating ownership of the exchange from management in line with internationally accepted code of corporate governance. The process will see the exchange being transformed from its current not for profit status to a profit making organization.” Demutualization progress is not mentioned on the ZSE website.
The shareholding is now 32% Government and 68% stockbrokers, split equally among the holders of proprietary rights. According to an earlier report in The Herald, ZSE has 48 stockbroker members.
A planned future step is to raise new capital so that the exchange would ultimately be owned 16% by Government, 34% by stockbrokers and 50% by new shareholders.
Demutualization is the process through which an exchange converts from a non-profit mutual association, often a company limited by guarantee, into a for-profit company which follows the usual structure of shareholder ownership. It is meant to result in separation of trading rights, ownership and management. The shareholders are expected to convene a meeting to appoint a board of directors. In terms of usual corporate governance, the ZSE CEO would report to the Board of Directors in terms of performance and meeting objectives. The exchange can also list on its own trading boards and become a public company.
According to The Herald, corporatization is also needed for the ZSE to register as a stock exchange with the Securities and Exchange Commission, as required by the Securities and Exchanges Act.
The demutualization process began last year and in July 2014 a Memorandum of Understanding (MoU) was signed by the Ministry of Finance and Economic Development, the Securities and Exchange Commission, the Zimbabwe Stock Exchange and the Stockbrokers, according to a notice issued last year by SECZim.
Market capitalization was $4.07 billion with 59 companies listed and 37 trades during the course of yesterday (28 April).
History since 1896
The first stock exchange in Zimbabwe opened in Bulawayo in 1896 but only lasted 6 years and other exchanges were set up in Gweru and Mutare, according to the ZSE website. Dealing started again in a new exchange in Bulawayo in 1946 and a second floor was opened in Harare (then Salisbury) in 1951. The ZSE was formed as mutual society by a group of stockbrokers who put capital in return for shares of the exchange (proprietary rights). The exchange was funded through the issue of these proprietary rights. SECZim added last year “and over time non-member institutions also funded the exchange, including the Government which also contributed indirectly by way of corporate tax exemptions”.
The present exchange was created in terms of the ZSE Act which was passed in January 1974, although trading was not interrupted and the change was legal only. A Securities Act of 2004 replaced the ZSE Act and became operational in September 2008. The Securities Commission of Zimbabwe became operational in October 2008 and is regulator, governed by commissioners appointed by the Minister of Finance.
According to the SEC: “The major benefit of demutualization is that it leads to the separation of the ownership, trading rights and management of ZSE, which eliminates the conflict of interest between exchange and broker members. If successfully implemented, demutualization should indeed lead to sustainable governance of the exchange premised on transparent, independent and efficient decision making for the benefit of all stakeholders, particularly investors.”