Econet announced its migration to an Over-The-Counter (OTC) platform on the Victoria Falls Stock Exchange (VFEX). This is a special trading platform managed by the Zimbabwe Stock Exchange (ZSE).
At first perceived as a routine corporate decision, the move signifies a strategic transformation with the potential to reshape Zimbabwe’s capital market and significantly increase the value of shareholders’ investments.
A Major Structural Shift
While the announcement may have seemed administrative, it marks one of the most substantial changes in Zimbabwe’s capital markets in recent years. This transition represents a pivotal moment for Econet, its investors, and the exchange itself.
Econet has long argued that its shares are undervalued on the ZSE due to low trading volumes, limited liquidity, and a thin market that fails to reflect the company’s true fundamentals. In such environments, insufficient trading activity can lead to prices dropping significantly below their intrinsic value. Econet believes that its fair valuation could be substantially higher than the current market price, but existing market structures have obstructed the realization of this potential.
Benefits of the OTC Platform
By moving to an OTC platform, Econet gains enhanced flexibility in trading its shares. Unlike traditional exchanges where prices are determined solely by supply and demand, an OTC framework allows the company to set a reference or minimum price for buying and selling its shares.
Key advantages include:
Buyer of Last Resort: Econet can purchase shares back at the established minimum price if shareholders cannot find buyers, effectively creating a floor price that reduces downside risk for investors.
Transformative Potential for Minority Shareholders: For example, a shareholder with 1,000 shares currently valued at around US$80 could see their value rise to US$240 or more under the OTC framework, with the company guaranteeing that price. This generates better valuations, greater certainty, and reduced volatility for investors.
Addressing Liquidity Concerns
Institutional investors, including pension funds, have long faced challenges with liquidity in Zimbabwe’s equity market. Large holdings are difficult to sell without adversely affecting prices, leading to asset valuations that can lag behind economic realities. The OTC structure alleviates these concerns by potentially increasing asset values while maintaining liquidity through structured trading and buybacks. This is crucial for pension funds, as their asset valuations directly impact retirement benefits and regulatory compliance.
A Win-Win Scenario
At first glance, Econet’s shift might appear to be a setback for the ZSE. However, the alternative could have been far worse: Econet’s majority shareholder had the option to buy out minority shareholders and delist the company entirely, which would have significantly weakened the market by removing a major listing. Instead, the OTC option keeps Econet within the domestic capital market, ensuring that brokers remain involved and preserving investor participation.
A Vision for Inclusion
Econet’s strategy reflects a more inclusive vision. Rather than sidelining smaller shareholders, Econet’s majority shareholder seems committed to their continued involvement and potential growth. This is a rare instance in a market often characterized by zero-sum outcomes, where all stakeholders stand to benefit.
In conclusion represents a landmark development for Zimbabwe’s capital markets, promising a more robust and inclusive investment environment.
