THE government’s decision to extend by another year the suspension of the fungibility of Old Mutual Limited and PPC Limited shares is a huge blow to the country’s efforts to build business confidence, particularly among foreign investors, a research firm has said.
Old Mutual and PPC were suspended alongside Seed Co International, after being accused of causing financial indiscipline and fuelling the manipulation of the exchange rate.
This week, the government gazetted an extension of the suspension of the fungibility of the two firms for other 12 months. The outcome of last year’s official investigations remains unknown.
As the battle drags on, a London Stock Exchange-listed firm with investments in Zimbabwe, Cambria Africa, recently announced that it had engaged the authorities for permission to transfer its shares to the Johannesburg Stock Exchange (JSE).
Zimbabwe has been experiencing investor flight due to policy inconsistency.
Fungibility is the ability of a good or asset to be interchanged with other individual goods or assets of the same type. In trading, a financial instrument (stock or bond) is considered fungible if it can be exchanged (bought or sold) on one market or exchange and then sold/bought on another market/exchange.
FBC Securities in a commentary said dually listed initial public offerings (IPOs) are significantly more attractive to investors because of the investor protection derived from increased corporate governance, adding that investors diversify investment opportunities in sectors that may not be available on the local stock market.
“ This is a huge blow to confidence rebuilding specifically for foreign players invested in these assets. Fungibility is the ability of a good or asset to be interchanged with other individual goods or assets of the same type. Full fungibility is when a financial instrument (stock/bond) can be sold/ bought from one market/exchange into the other and vice versa. Partial fungibility is when shares can only move in one direction. This advantage can be critical because investors that are risk averse are more willing to make investments in foreign corporation with enhanced listing requirements. Another biggest advantage of dual listing is superior access to liquidity and capital,” said FBC Securities.
It added that the increased liquidity is mainly driven by enhanced liquidity trading volumes offered by an exchange with greater numbers of trading partners, investors and a more sophisticated asset management infrastructure.
FBC Securities tressed that investor base is increased and corporate brand is promoted through publication of company news and financial reports.
“This diversity allows investors the possibility of tacking advantage of geographical diversity and consequently reduces portfolio risk, “it said.
Last year, the Insurance and Pensions Commission (Ipec) expressed concern over the delay in scrapping the suspension of the fungibility of Old Mutual and PPC share, saying it is affecting the determination of asset values of pension fund members and policyholders currently tied up in the two counters.