Dividends trapped in banks

HARARE – While most counters on the Zimbabwe Stock Exchange (ZSE) have been trying to outdo each other in declaring dividends, concern remains over the failure by foreign investors to access their return in light of the liquidity crisis rattling the local economy.

Despite the worsening economic conditions, almost half of the bourse’s over 58 active counters have declared dividends, but shareholders are struggling to access the money.

For over a year, Zimbabwe has been battling an acute cash shortage on the back of depleted nostro balances, leaving most companies with shareholders outside the country failing to remit dividends to their respective shareowners.

As much as local shareholders have access to their dividends, they have also been unable to withdraw their takings from the various banks around the country on the back of an acute bank note shortage.

Their major advantage has, however, been that they can still access the return on their investment through electronic means.

But for foreign shareholders, who make up close to half of the investors on the ZSE, they have been the hardest hit, since the country is struggling to process foreign payments.

Financial analyst, Kudzai Sharara, said while it made little sense, technically, for local companies to declare dividend which cannot be accessed by their shareholders, it is still the right thing to do.

“The dividend declarations have been a way of getting rid of the money. On their balance sheets, the companies will be sitting on a lot of money, which they cannot take out or use to perform mundane tasks such as importing raw materials, because of the delays in foreign payments...

“You will see that the market has companies like SeedCo and Delta, who both declared a special dividend … In the case of SeedCo, they have plans to unbundle and need to raise cash for expansion but they cannot move the money out of Zimbabwe, so that is the present situation that has resulted in the dividend declarations,” Sharara said.

After declaring a $10 million dividend following a $20,7 million profit for the year to March 31, 2017 SeedCo also paid an additional once-off special dividend of 1,46 cents per share due to “exceptional performance in the current year”.

The leading seed producer’s chief executive, Morgan Nzwere, announced that “shareholders would have an option to elect either cash or scrip dividend,” in the wake of cash shortages.

Companies short on cash often pay scrip dividends instead of cash dividends, with a scrip being a temporary document representing fractional shares resulting from a split or spin-off.

Beverages manufacturer Delta — 38 percent owned by global brewer AB In-Bev with over $1 billion market capitalisation on the ZSE — also declared a special dividend of 1 cent per share, giving a total dividend amounting to $12,2 million.

The company stated that foreign remittances were to be made subject to availability of foreign currency, pointing out that it would be investing in a lot of capital projects this year.

The country’s largest cigarette manufacturer, British American Tobacco (BAT), is among the affected counters failing to pay over $8 million in dividends to its offshore major shareholder  — British American Plc — due to foreign payment delays.

The shareholder holds a controlling 42,98 percent stake and over 8,8 million shares in the ZSE-listed counter.

The company’s finance director, Lucas Francisco, recently told the businessdaily that the cigarette manufacturer was presently in discussions with the shareholder to map a way forward, while also engaging banks locally for the transaction to go through.

“Basically, the final dividend for 2015 and the 2016 final dividend are outstanding. To date, I can say we are holding about $8 million that is yet to go through.

“We have been engaging, but despite the dividends being on the priority list the fact is there is no money.

“So, the little cash that the country is generating is used to prioritise the key inputs that are required for production,” Francisco said recently.

He also pointed out that the shareholder was “concerned” with the remittance situation given the unpredictability of the country’s cash situation.

Of the companies that have so far released their results for the period to December 2016, wines and spirits maker and Delta associate, African Distillers — which also has shareholders outside the country — declared an interim dividend of 0,20 cents per share for its half year to December 2016.

Diversified group TSL Limited declared a final dividend of 0,3 cents per share payable in respect of all the ordinary shares of the company for the full year to October 2016, with the board of financial services group, Getbucks, proposing an interim dividend of $350 000 for the half year to December 2016.

Econet Wireless Zimbabwe — which recently had a $130 million rights issue to raise cash offshore to pay off its over $128 million external debt after failing to honour it due to Zimbabwe’s foreign currency crisis — also declared a $12 million dividend with offshore shareholders facing the same problem.

Equities analyst Ranga Makwata said companies were being forced to declare dividend as it makes little sense to keep cash on the balance sheet if it cannot be used by the company.

“There is nothing wrong with declaring dividend, especially when the respective company does not have an exciting project in the pipeline...

“The only problem now is that the country is suffering from blocked funds, which shareholders outside the country cannot access or use…” Makwata said.

In light of the prevailing situation, economic experts have insisted that listed counters — from financial services to property developers — are rushing to declare dividends as a way to appease shareholders who have shown faith in them during the difficult times, given an uncertain financial future.

Veteran economist, John Robertson, said local companies did not have a choice but to pay dividends as they could not use the money for expansion plans.

“These companies are not to blame in this matrix, you will realise that they cannot do much with the money but pay dividends since they cannot import raw materials because payments to foreign suppliers are taking awfully long to go through, so that option is also out…

“Besides, no one really knows if these shareholders will ever have a window to take their money out, so in the event that the market crashes again, the firms will have plausible deniability,” Robertson said.

While the country trades using a multi-currency system dominated by the United States Dollar, the greenback has disappeared from the market along with government’s surrogate currency — bond notes — introduced late last year to assault the cash shortages.

This has prompted fears as some offshore shareholders are now apprehensive.

Figures recently released by the central bank indicated that the apex bank had managed to reduce the country’s foreign payments backlog by more than 50 percent to the current level of $185 million as at end of May.

However, most of these are just to raw material creditors and not dividend remittances for companies with offshore shareholders, which rank lowly on the central bank’s foreign exchange allocation priority list.

“This is also another problem, authorities are failing to realise that maybe the investors need to access their money.

“In my opinion, a dividend, which is not paid daily, must rank high on the list, because after all, these people have chosen to show faith in an investment destination being shunned by most,” Robertson said.

Financial analysts have also said the trend is likely to discourage future investors from committing to investment-parched Zimbabwe.

“Obviously, when someone brings money they intend to take it out at some stage…” Makwata said.

“Already, this is discouraging investors from coming that is also the reason why the ZSE has been rebounding… The ones failing to access dividends have been re-investing… not that the bourse has suddenly attracted a lot of interest,” Sharara added.

Makwata, however, said offshore investors needed to find alternatives to get the cash or re-invest.

“…But this should not be an issue really, as the onus is on the foreign shareholder to device clever ways to access the cash.

“They can even invest on other platforms… I am sure you have noticed the ZSE has been on a rebound and this is one of the reasons behind this,” he said.

Comments (1)

Foreigners are able to buy Old Mutual plc in Zimbabwe & sell them in London if they are desperate to take their cash out of ZW. The problem is that this means a 50% loss on repatriation of their cash. Tantamount to the devaluation of the mabondi money inside ZW banks. Remember its always best to keep any USD that come your way in your own pocket - NEVER bank it in ZW as u will never see it again ! Even Robert Mugabe confirmed this in his last birthday speech !

biggus - 17 June 2017

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