As a promoter, getting your company listed on an exchange is usually the ultimate goal when you start a company. It does not only provide an exit mechanism for promoters, but also serves as a fund-raising platform for expansion and growth. The public status enhances confidence even in the eyes of stakeholders, but it also comes with public scrutiny which an otherwise private company might not be exposed to.
The year 2023 was an eventful one on our capital markets with listings on both the Zimbabwe Stock Exchange (ZSE) and the Victoria Falls Stock Exchange (ZSE). With over seventy different securities, i.e. equities, ETFs, REITs, DRs etc listed on our different exchanges in Zimbabwe, does one know how the process of listing works and which parties are involved? Well, that’s what this article will unpack.
Although different exchanges have different requirements when listing on their platform, the ZSE listing requirements is a document that provides relevant information beyond just this article, to someone who seriously want to have a deeper understanding about listing. Although many securities can be listed, for the purposes of simplicity this article will just dwell on the equities and assume that the listing is in an Initial Public Offering (IPO).
Sponsoring broker
This is perhaps one of the most important party in a listing transaction and the task is usually performed by licensed brokerage firms. Once the company decides to list they will need to identify a sponsoring broker. She will act as the intermediate party between the issuer and exchange and all correspondence with the exchange, including the submission of application will be directed through her.
Her duties also including capital raising i.e. selling scrip on behalf of the issuer in the primary market as the promoters will be reducing their shareholding.
On the ZSE, before listing equity the issuers are required to have at least 300 shareholders and 30% of the stake held by the public. In an IPO the issuer will then stipulate the amount that they intend to raise, and if market orders more than what the company is selling, it is called an oversubscribed IPO and the opposite is true for an undersubscribed IPO.
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The financial advisor is usually the brains behind the transaction. Although in this article we focus on listing via an IPO, the financial advisors orchestrate the whole plan and advises the best strategy to achieve the intended goal, and in some cases, it will mean a private placement first then listing the shares by introduction. In plain vanilla equity listing their role might be underplayed, but in a complex structure what requires financial engineering, they become very key in the transaction.
The financial advisor also prepares the transaction documents i.e. information memorandum, prelisting statements or prospectus depending on the type of listing. She also advises the promoters on other strategies to make the listing successful for example enhancing chances of a success by getting an underwriter. With prescribed asset requirements for certain types of institutional investors in Zimbabwe, the financial advisors can also advice the issuer to apply for and assist if the listing is eligible for the status.
Sometimes the roles of the sponsoring broker and financial advisors overleap, and other exchanges does not have clear distinction between the two such that the roles could be satisfied by one party. In Zimbabwe the financial advisory role is usually played by the advisory department of brokerage firms, corporate department of audit firms or stand-alone corporate finance advisory firms.
Underwriter
In scenarios where the issuer wants guaranteed subscription they might buy insurance on the fundraise and this is called an underwritten offer. In an underwritten offer a third part conducts due diligence and analysis on the security being listed, and for a fee agrees to buy the remainder that the market fails to subscribe. It is essentially a long-put option, whereby the issuer has the right to sell to the underwriter, should the need arise.
Depending on the character of an underwriter, the process can help to inspire confidence amongst participants in the market. Due to the fees involved in an underwritten offer, the promoters can be innovative and only buy insurance for a portion of the offering as opposed to the whole offer. Econet and Ecocash’s rights issue were underwritten by TN Asset Managers.
Legal practioners
These are also another important party in the listing process and make sure that everything regarding legal matters is adhered to. With the introduction of REITs in our capital markets, their advice has been quite crucial especially regarding the movement of properties from the promoters into the REIT.
In innovative and complex transactions, the transaction relies heavily on this party to ensure that everything happens above board. They also assist in designing contracts e.g. the insurance contract with the underwriter in such circumstances.
Auditors
Since listed securities are of public interest, an auditor becomes critical in providing an opinion on the presentation of the financial information by the promoters. On the ZSE, listed equities are required to have a satisfactory profit history for the preceding 5 years.
The size of the transaction usually determines the auditor to be selected for the role since that can also influence the fees.
Transfer secretary
This is not usually a well-known party in the transaction but nevertheless crucial. The transfer secretary maintains the register of the shareholders. She also handles communication of the issuer and shareholder especially with regards to circulation of important information like financial statements, annual reports etc.
All these parties charge a fee for their services and it is usually negotiated between the promoters and the service providers. The exchange also charges its listing fees, which are annually paid if listed on the ZSE.
Surely, its difficult to pen down everything that happens prior to listing, which could be a project of 3 – 6 months, in a one-thousand-word article.
However, my hope is that this article scratched the surface in terms of luring someone to either consider listing or at least just research further
how the process works.
- Hozheri is an investment analyst with an interest in sharing opinions on capital markets performance, the economy and international trade, among other areas. He holds a B. Com in Finance and is progressing well with the CFA programme. — 0784 707 653 and Rufaro Hozheri is his username for all social media platforms.
