During the 2019 budget presentation, Zambia’s Former Finance Minister Margaret Mwanakatwe had announced government plans to make state owned entities more efficient through listing on the local bourse. This was part of a revenue generation drive through boasting earning capacity of these entities through reducing dependency on the state. Two such entities targeted were the Zambia State Insurance Corporation (ZSIC) and Zambia Forestry and Forest Industries Corporation (ZAFFICO) Ltd. Listing these would not only reduce fiscal burden on the state but give citizens an opportunity to take up stake and influence running of these entities.
During the Industrial Development Corporation (IDC) conference in Livingstone last month, it was announced that one initial purchase offer would close before the year ends. However our analysts view of the IPO listing given the current macroeconomic turbulence, makes very mismatched timing from a valuation perspective given lack of liquidity in the market and the exchange rate fluctuations. Going ahead to list would not only be a misplacement of priorities but a risk of undervaluation. Most potential investors (individual and institutional) grapple with energy crisis effects manifesting in extended load management and other risks to inflation which even overshadow fiscal vulnerabilities.
“It is very highly unlikely that the IPO will take place as the capital markets are affected by the economic woes which do affect company valuation making this period a very inappropriate time to list. Let alone individual and institutional investors liquidity is better placed for bonds which are far higher yielding assets given the times we are in”, Finance and Economic Analyst – Mutisunge Zulu who also serves as National Secretary for Zambia’s Economic think tank said in a note. The timing is mismatched and the fundamentals not very conducive. We can pick a leaf from a similar offering but in rights issue for ZCCM-IH were the subscription window ended up being widened to about 3 months and the currency slid steeply affecting appetite, he said. Timing is everything.
Other analysts have said IPO listing requirements are very strict and chances are that these SOEs in question may not have met the 3 year consecutive profitability requirements and appropriate governance standards.
Zambia currently grapples with rising debt, energy crisis and drought effects that have impacted both the financial and capital markets.
The Kwacha Arbitrageur