Is it privatisation or

demutualisation ?

12 September, 2014 A. D. Chirume

Outline

The history of the ZSE Who owns the ZSE? Reasons for Demutualisation Impact of politics and the economy Initiatives to demutualise Chosen path Lessons to be learnt Wayforward

History of the ZSE

The first exchange was established in 1894 named Salisbury Stock Exchange

Other exchanges in Bulawayo, Gweru, and Mutare traded for six years and then closed.

On 2 January,1946 the Exchange was established in Bulawayo by 22 practising and 9 non-practising members.

Members capitalised the Exchange through buying of proprietary rights.

History of the ZSE

Stockbrokers lobbied Government to promulgate a law to protect the industry.

The Rhodesia Stock Exchange Act was then promulgated in 1974

At Independence (1980), it was renamed the Zimbabwe Stock Exchange Act.

History of ZSE

In 2004 the Securities Act was promulgated which repealed the ZSE Act

The operationalisation of the Act was effected

through the appointment of five Commissioners in 2008.

In 2009 the Secretariat was established.

In August, 2013, the Act was amended and renamed the Securities and Exchange Act.

Who owns the ZSE?

An understanding of history is critical in ownership identification.

If the owner of the exchange is determined the demutualisation/privatisation process can be determined.

Ownership by brokers would mean the process

is demutualisation

Ownership by Government would mean process is privatisation.

Who owns the ZSE ?

Members believed the ZSE was wholly owned by them Reasons Exchange established by members Members lobbied Government for legislation

(1947 – 1974)

Government believed it owned the Exchange. Reasons

ZSE was a creature of statute Government had given ZSE tax free status

Who owns the ZSE?

Financial Advisors decided to coin a new name: Corporatisation

Reasons were (i) to give themselves an opportunity to investigate whether it was:

Demutualisation, or Privatisation and

(ii) Manage the mine field which could torpedo their mandate

Reasons for demutualisation

• Improve Corporate Governance through:

Separation between trading rights,

management and control

• The amended Securities and Exchange Act

(Cap 24:25) directed that Exchange be a

company held through shares.

Reasons for demutualisation

• Provide an avenue to Stockbrokers to realise

their investment.

• Provide a platform for raising capital of the

exchange

• Following a global trend: JSE was an

inspiration

Impact of Politics and the economy

Pre- 2009: Impact of restrictive trade

practices on ZSE

Affordability: Local investors incapable of

investment into the ZSE on dollarisation of

the economy in 2009

Impact of change of Governments

Governments over 2009 to 2014 had

radical differences on strategies

Initiatives to Demutualise

First Attempt (2011) An Audit Firm was chosen just before the Interim

Board had been established. Interim Board wanted more transparency in

selection Rejected the process.

Second Attempt (2012) A Tender was flighted. About five firms bid

(mostly auditing companies) Interim Board selected winning bidder

Initiatives to demutualise

SECZ rejected the bidder because: Not licensed under them Felt there were possible conflict of interest

Third Attempt (2012) SECZ flighted the tender. Undertook first short-

listing SECZ invited ZSE and stockbrokers assist to

adjudicate on the top two bids.

Chosen Path Two committees were established:

The Demutualisation Sub Committee

The Demutualisation Working Committee

The Demutualisation Sub Committee was the Project Steering Committee

The Working Committee was designed to implement PSC decisions

Chosen path

Project Steering Committee Composition

PARTICIPANT NUMBER POSITION

SECZ CEO 1 Chairman

SECZ HODs 2 Members

Non Exec ZSE 2 Members

Exec ZSE 2 Members

Members of ZSE 2 Members

MoFED 2 Members

TOTAL 11

Chosen path Financial Advisors instructed to produce:

• A Business Review of the ZSE

• Valuation Report of the ZSE

• The Demutualisation Plan

•The Legal Advisors appointed through a tender process.

• Required to produce founding documents

Project steering committee

Issues with the Committee

oMinistry of Finance and Economic Development (MoFED) regulator of SECZ

o SECZ regulator of ZSE and Stockbrokers

o ZSE is a regulator of stockbrokers

o SECZ is a new regulator (established in 2009)

o ZSE previous regulator (established in 1894)

Project steering committee (continued)

o SECZ is advisor to Government through MoFED

o ZSE CEO was the inaugural SECZ CEO

o Stockbrokers believed they owned 100% of ZSE

oMoFED believed Government owned 100% of ZSE

o Defining decision making ZSE board vs PSC

The MOU

•Agreement on the following:

• The pre-demutualisation shareholding structure

• The dilution after demutualisation

• The proposed path: • Corporatisation

• Private placing to specific groups

• Investigate the possibility of joint ventures, skills transfer etc

• Listing on its own exchange

• Proposed path only identifies milestones and not the timeframes

• Maximum shareholding for each investor

Signatories to the MOU

• The Shareholders: • Government represented by MoFED

• Stockbrokers

• The Regulator: Securities and Exchange Commission

• The Zimbabwe Stock Exchange

Lessons to be learnt

• The Minister of Finance is critical to a successful demutualisation process.

• Need to inspire every stakeholder to aim for the “bigger goal”

• Effective communication with all stakeholders of paramount importance.

• Understanding the dynamics of the leadership of this project: (Project Steering Committee)

Lessons to be learnt

• The Exchange/ stockbrokers:

• Accept Regulator has specific mandate

• Try and understand the intention of the Regulator

• The Regulator

• Understand dynamics of change management

• Drive process through persuasion rather than force

Lessons to be learnt

• Reduce conflicting roles.

• Need to build trust amongst stakeholders

• Accounting for and valuation of proprietary rights

• Learning from other exchanges

• Demutualisation is an emotive and complex process.

Way forward

•SECZ seeking direction from MoFED

• Two possible outcomes: • SECZ continues to lead the process

• ZSE leads process with SECZ approving application to register the Exchange

• To answer the Question posed:

ZSE is demutualising

Thank You