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Securities players should invest in ICT
There have been a number of regulatory changes on the securities market that affect the transfer of shares and other issues related to securities. As market participants continue to innovate, this week our reporter Merlin Garwe (MG) spoke to First Transfer Secretaries managing director Tanaka Musiwa (TM) who said market participants should continue to innovate around their information communication technology systems in order to achieve efficiencies and to lower costs. Below is the interview.
MG: Take us through your business and explain how relevant it is in the securities markets in Zimbabwe.
TM: First Transfer Secretaries (Private) Limited (FTS) is involved in the business of providing transfer secretarial or registry services. It provides services to both listed and unlisted companies. Our services include administration of registers for equities, bonds, dentures, and preference shares, Initial Public Offers (IPOs), rights issues, claw-back transactions, bonus issues, consolidations, share splits, mergers and acquisitions, unbundling, capital re-construction and re-organisations, payment of dividends, either as cash or scrip or dividend in specie, payment of bond interest as well as the principal repayments, administration of annual general meetings, extra-ordinary general meetings and scheme of re-construction meetings and bond or debenture trustees, among others .
MG: What can you say have been the major challenges you have faced in Zimbabwe?
TM:The major challenge has been the lack of availability of foreign currency that has negatively impacted on the remittance of dividends payable to foreign shareholders.
MG: What can you say have been the trends of transfer of ownership of securities in Zimbabwe?
TM: The key investors have been the corporate investors and institutional investors who have the capacity to push large volumes. Lately, due to challenges faced in the remittance of dividends and sale proceeds, the foreign investor participation has been low.
How has regulation affected your line of business?
TM: Several regulations have been put in place by the Securities and Exchange Commission of Zimbabwe (SECZ) to protect the market and in particular the investors. All shares traded on the stock exchange now require that they be dematerialised before they are traded. This has meant that the processing of share certificates on trades by the transfer secretaries has been removed, except for special circumstances such as the transfer of shares marked for inheritance purposes. This area used to constitute the bulk of our transactional work. Issuers no longer have to spend substantial amounts acquiring share certificates. SECZ has made it mandatory that the control of dividends be vested in the hands of the transfer secretaries instead of the issuer, to provide the necessary firewalls. This has brought about more responsibilities being vested in the hands of the transfer agents. Off-market transactions previously done by the transfer secretaries are no longer permissible as all trades have to be done on the exchange.
MG: What can you say about volumes that you have handled over the years? In
TM: Over the years, the values of the dividends that we have been handling have been continuously increasing. This year alone we processed dividends that are over a billion Zimbabwean dollars, although the actual value in real terms has been eroded by inflation. Following the launch of the CSD in 2014, we dematerialised large volumes of scrip for the active shareholders as the new requirements dictate that all shares that are to be traded on the stock exchange should be demated. The volumes started declining towards the end of 2018 because most active investors had completed depositing their shares on the CSD. Over the past five years we administered three new listings, that is Proplastics Limited, Getbucks Microfinance Bank Limited and Cassava Smartech Limited. Getbucks Microfinance Bank Limited was listed through an Initial Public Offering and Proplastics Limited and Cassava Smartech Zimbabwe Limited were introduced through an unbundling. There has been some activity on bond administration where we administered six bonds and two debentures for our clients for the past five years.
MG: What has been your valuable innovation over the years?
TM: We have continuously improved our ICT systems as well as the IT infrastructure. Our latest development has been the introduction of the Virtual meeting software and the FTS Live system.
MG: Covid-19 is still among us. How has it affected your operations?
TM: In response to the Covid-19 pandemic, we set up systems that enable our employees to work from home. Consequently, during the lockdown there has been no disruption in our services to clients and stakeholders. The system has worked so well. Evidently, the Covid-19 pandemic and resultant lockdown have adversely affected the operations of a number of our clients who did not fall under the essential services as per the government directive to operate from home. Some were not able to pay dividends.
MG: What are your thoughts on Zimbabwes securities market?
TM: We have seen commendable effort on the introduction of mobile and online trading as this has the impact of reaching out to a broader spectrum of the population. In terms of the deepening of the market, the introduction of the first Exchange Traded Fund (EFT) by Old Mutual is a welcome development. We now look forward to the introduction of Real Estate Investment Trusts (REITS) as has happened in other developed countries. The necessary legislation has been put in place to accommodate these new products. There are a number of products yet to be introduced that will improve on market liquidity such a turnaround trades and securities lending and borrowing. In order to attract foreign investors, the cost of trading on the securities market should be lowered so that Zimbabwe remains as competitive as its regional counterparts. In that regards, we feel that some of the taxes and levies need to be revised downwards. There should be further efforts on bringing public awareness to the marginalised communities that perhaps feel that the securities market is only for the elite.
MG: What key innovations are needed to make it a level playing field?
TM: Market participants should continue to innovate around their ICT systems in order to bring in efficiencies and to lower costs. Interoperability should be encouraged to ensure that as many systems as possible, from diverse participants, can interlink to provide efficiencies and wider options. The market should strive to go paperless as much as is practical. The authorities should consider waiving some taxes and levies for shareholders selling small parcels of shares.
MG: In the outlook, what can you say about your future?
TM: The future looks promising for Zimbabweans companies, especially for those in the ICT space as well as those in the securities sector. There are limitless opportunities, provided one continues to innovate and take advantage of the opening of the marketing sector. The availability of foreign currency, or lack of it, will continue to have an impact on the remittance of dividends and repatriation of de-investment proceeds. The prioritisation of this area will no doubt attract more foreign investors. We anticipate that FTS will continue to play an increasing role in the advisory services on corporate actions as the economy grows and our capital market continues to deepen.