The Zimbabwe Stock Exchange has posted some of the strongest returns on the continent, but a new listing by Tanganda Tea Company signals a different kind of activity than fresh capital raising.
Stock Market Performance and Investor Caution
The Zimbabwean bourse has seen impressive gains, with the All-Share Index growing by 612 per cent in local currency during the first nine months of 2020. Even when valued in US dollars or Euros, the market returned roughly 40 to 46 per cent. By comparison, only Malawi and Rwanda posted positive returns that year, with most other African markets declining.
Bloomberg reported that Zimbabwean stocks surged about 370 per cent in 2021, driven by investors seeking a haven against inflation. However, returns of that magnitude are rare for a country facing international sanctions. Kyle Bass, a US-based fund manager, reportedly noted that while ZSE investments outperformed other African markets, their value might not exceed a crate of eggs. This sentiment reflects the risks investors face in Zimbabwe. The government closed the exchange for weeks in 2020, citing speculation that was allegedly driving up inflation and devaluing the currency. Officials suspected companies like PPC and Old Mutual were being used in triangular arbitrage, where investors could buy shares locally and sell them abroad for hard currency.
This intervention disrupted trading and led to a massive sell-off by foreign investors. The Zimbabwe Stock Exchange CEO noted that many listed shares are now held by locals, indicating an exodus of foreign capital despite the market’s statistical success.
Related: Safaricom Cuts Fuliza Fees in Half
Demergers and Corporate Strategy
Tanganda Tea Company joins the exchange as the latest entity to list, but it is not raising new funds. The company is a value accretive decision for the Meikles group, a long-standing business dynasty. The listing serves to separate the agricultural and bottling interests of Meikles Limited into a distinct entity.
According to the pre-listing statement, the document is not an invitation to subscribe for shares. It is issued for informational purposes. Tanganda is essentially a demerger, a process where a conglomerate spins off a unit to create a standalone company. This has been the primary form of listing on the ZSE over the last decade.
Other entities like Padenga Holdings and Simbisa Brands originated as spin-offs from larger conglomerates. Innscor Africa has similarly broken its business units into separate public companies. Even Econet Wireless bundled its mobile money and banking operations into Cassava Smart Tech. This trend suggests that the exchange is not attracting new business ventures, but rather facilitating the restructuring of existing large corporations.
This structure implies a lack of fresh capital entering the economy. The stock market, intended to fund growth, is instead serving as a tool for corporate restructuring. While the Meikles family gains a separate entity for its agricultural assets, the broader economic function of the exchange remains subdued.
Related: Reckitt in court over formula claims
Restructuring Over Expansion
The focus on demergers highlights a fundamental shift in market trends. Rather than funding new ventures or expanding operations, the exchange facilitates the disassembly of large conglomerates. Investors in this environment are primarily focused on asset allocation rather than growth.
Meikles Limited has long held a dominant position in the region’s commercial sector. By spinning off Tanganda, the group aims to unlock the specific value of its agricultural assets. This allows shareholders to own a pure-play company in a sector where they might not otherwise have exposure.
Analysts suggest that this trend is likely to continue. The limited availability of hard currency makes it difficult for new companies to list and raise capital. Consequently, the exchange will likely remain a venue for corporate reorganization for the foreseeable future.
