Is MTN Zambia Reluctant to List on LuSE? Part 2
Economy, Opinion

Following a recently published article on this website, a lawyer and finance expert engaged with the Founder of Financial Insight in an exchange that made memorable reading that we felt needed to be immortalized in an article. The following is their exchange and the views expressed are merely opinions of the respective authors.

Paul Mulenga, Lawyer by Profession

Paul Mulenga: Listing rules are too strict and if they have sufficient capital, there is no need to list

Founder FiZ: MNCs listing may be the only way we have have more participation from locals. As side from tax benefits, part of the earnings remaining inland would also not be so bad

Paul Mulenga: What’s the tax benefit for listing?

Founder FiZ: Tax benefit for in land revenue. MNCs are keen to export their revenues. Unlisted entitles only leave tax inland (the benefit for Zambia) however having them listed would also mean a slice in earnings pie. That’s if they declare dividends

Paul Mulenga: Hmm, I’m just thinking whether it would be beneficial to list (by paying less tax) or comply with the stringent listing rules (which is expensive). While having them listed will mean a slice of the pie in Zambia, I wonder whether an investor would have the incentive to do that especially if there is no benefit to them. I know a named company that de-listed from the LuSE

Founder FiZ: Something for the LuSe Board to ponder no doubt. Maybe you have uncovered further reasons why many MNCs shun from listing in Zambia

Founder FiZ: I think fizambia deserves an article from you

Paul Mulenga: Founder, I think that listing is generally expensive in most jurisdictions owing to the compliance requirements. However, companies generally go to the market to (i) raise finance and/or (ìi) increase the value of the company. Our stock exchange is too small to raise the type of money MNC’s wish to raise. Sometimes, even our banks can’t raise certain amounts especially for massive projects. In terms of the stock exchange, most exchanges in Africa can be classified as none liquid showing that the allocation of resources in Africa from the savers to users is inefficient. Perhaps the way to go,as suggested by some scholars is to have a regional exchange for it to make sense.

Founder FiZ:  I would also go further to contend that listing also improves the public profile of the company. With the happenings in Nigeria and a few other counties eluded to, list could inevitably become a necessary “evil” in order to win government sympathy. If you follow the critical timeline of MTN’s Nigeria debacle you will see a pattern of events that MTN need to be wary of being replicated in other jurisdictions. The the same is followed, listing would be in their best interest to protect value

Paul Mulenga: Founder great points raised. I think that listing may be good if the company gets the funding it requires. It’s all about resource allocation and returns for an investor. Some companies like Zambeef are a great example. Its shares are so difficult to buy because people hold on to them for the benefits such as regular declaration of meaningful dividends and being associated with such a well-run entity. Other companies may be on the LuSE, but don’t declare dividends often. So from an investor’s point of view, it doesn’t make sense. From a company point of view, having many shareholders tends to be much more expensive than borrowing from a bank in the long run. The beauty with Zambeef is that it home grown and most Zambians view it as their own. The MNC’s need to do more to fit into the local environment.

Founder FiZ:  Paul Mulenga interesting Zambeef is yet to declare a dividend in recent times. With the coming on board of CDC though that could change as was declared in the last annual report. There are companies that were required to list but are yet to post a single dividend. I would consider these as outliers as the reason to list was mainly due to them fulfilling a requirement to bringing their company into Zambia. However that being the case with the rise of a few pension houses liquidity being injected into the stock market will depend on the value creation preposition of the companies that chose to list. Warren Buffet insists on finding that sweet spot in a company. May be it’s only a matter of time that life is injected into our LuSe

Chilombo Mulenga, Finance Expert and avid critic of

Chilombo Mulenga: To understand why MNCs shy away from listing is subsidiary jurisdictions, you have to consider the entire group structure and listing strategy. Many MNCs list the ultimate parent company, all subsidiary operations are not listed. The parent company has no active operations of its own, concentrated at parent or holding company is capital rising and treasury activities among other activities. So from a group and capital raising perspective, it makes no strategic sense to list subsidiary operations in various jurisdictions that subsidiaries operate. Many subsidiaries are funded by group, using a consolidated balance sheet as a bargaining for favourable financing terms.

Even foreign banks which are listed at LuSE don’t have enough balance sheet to do big deals, they ride on group balance sheet meaning that our capital market is extremely small. I think MNCs which choose to list their Zambian subsidiaries on LuSE do it purely out of courtesy other than strategy. Of many of Zambian companies were not subsidiaries of foreign companies, we would had a good number of them listing on our local bourse. Zambeef was forced to dual list because our capital market can’t meet its capital requirement.

Also lack of activity and investor insensitive to market information is another deterrent. See how Zambeef shares prices moved on LSE and LuSE in the wake of the Zambeef debacle a few years back? There was no movement on LuSE but a lot moved on London Stock Exchange.

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