Zimbabwe Suspends Trading of Dual-Listed Old Mutual and Others

Zimbabwe has suspended the transfer of local shares in dual-listed companies, like Old Mutual, to foreign bourses. Which is one of the main ways citizens and businesses have been able to obtain dollars as inflation wipes out the local currency.

Last June, Zimbabwe reintroduced a currency, the Zimbabwe dollar, ending a decade of dollarization. But with no foreign or gold reserves to back the new currency up, its value has plunged while inflation soared to an annual rate of 540.16% in February.

Foreign and Zimbabwean investors aiming to obtain foreign currency have been buying shares in Old Mutual, Pretoria Portland Cement and SeedCo. on the Zimbabwe Stock Exchange and selling them on foreign exchanges.

In a government notice on Sunday, Finance Minister Mthuli Ncube said the practice had been suspended for 12 months. The national treasury said this was “part of broad and bold measures to weed out some of the visible sources of currency instability.”

Old Mutual’s stock also trades in London and South Africa, PPC in South Africa and Seed Co. in Botswana. Such dual listings and differing exchange rates can offer arbitrage opportunities. The ministry’s action means the three stocks are no longer fungible, or regarded as being equal value to those traded on other exchanges.

Justin Bgoni, the Zimbabwe Stock Exchange’s chief executive officer, said the government’s action was disappointing and would only increase foreign-investor flight from the country.

“We are disappointed with this action and felt that the market should have been allowed to continue,” Bgoni said from, Harare. “There were measures already done by the Securities and Exchange Commission of Zimbabwe and these should have been given a chance to see if they would work.”

The Zimbabwe dollar was officially trading at 18.4283 to the U.S. dollar on Monday and at 40 on the black market. Many investors use what is known as the Old Mutual Implied Rate (OMIR) to assess what they say is the true value of the local currency.

READ MORE: Zimbabwe’s Inflation Rate Rises to 3-digit in 30 months

This compares share prices of Old Mutual in Harare and in Johannesburg to determine the exchange rate. The OMIR was at 60.77 on Friday, according to currency tracking website MarketWatch.

In 2008 at the height of hyperinflation, Zimbabwe also suspended the transfer of dual-listed shares in companies like Old Mutual but this did not stem the crash of the local currency.