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Considerable care has been taken to make certain that the information presented in this publication is accurate and representative of the facts as they really are. Readers are advised to consult specialists on the actual situation.
A stock exchange is a public marketplace where securities/shares of companies and other financial instruments are bought and sold, i.e. traded.
Securities are instruments for raising finance/capital by the shareholders of a company. There are two types of securities offered on the Eswatini Stock Exchange (ESE)
EQUITY and DEBT SECURITIES.
A trade is the action of transacting in securities on the ESE. A trade is affected when buyers and sellers match at a given price and the transaction settles on the ESE.
Primary market offerings of securities occur when securities are offered for sale for the very first time.
Secondary market trading of securities occurs when shares that have been bought through a primary market offering are traded on the ESE.
The operations of the ESE are governed by the Securities Act 2010 of the Laws of Eswatini. The implementation of the Securities Act is the role of the Eswatini Government and it is enforced by the Financial Services Regulatory Services Authority (FSRA).
There is what is known as a Contract Note (CN). It is a document issued after a trade has settled on the ESE. The CN is produced by the buyer’s stockbroker who then hands it over the buyer of a security.
The Central Securities Depository (CSD) is a computerised central point in which all the shares of listed companies and all listed debt securities are held. It is a type of “warehouse” of records for the holders of all instruments that are tradable on the ESE. An account is opened for every holder of a given instrument. On that account is the name of the instrument, the name of the holder of the instrument, a record of how much of a given instrument an individual owns when the instrument was purchased.
A listed company is one which has a presence on one of the boards of the ESE. The boards are composed of public limited companies (PLCs) that have met the ESE Listings Requirements and have had their listings approved by the ESE Market Committee and the FSRA and have paid the listing fee commensurate with the market value of their issued capital.
Each security on the ESE is assigned an International Security Identification Number (ISIN) which identifies each security uniquely. This is one of the features of the modern Stock Exchange. ESE became the sole financial securities numbering agency in Eswatini by partnering with the Association of National Numbering Agencies (ANNA) and assigns ISIN’s.
An Initial Public Offering (IPO) occurs when a company offers its shares for sale to the public on the ESE for the very first time. When a company decides to have an IPO it is said to be “Going Public”. Going Public broadly describes the process through which a company converts itself from a private limited company to a public limited company (Plc) and subsequently sells its shares to the general public via an IPO over a licensed stock exchange.
FREQUENTLY ASKED QUESTIONS ON HOW TO INVEST IN THE STOCK EXCHANGE.
Having decided to invest in securities that are listed on the ESE, investors must then choose a stockbroker.
A stockbroker is an ESE member firm and is licensed by the FSRA to buy and sell securities on the ESE on behalf of investors. To start the process of investing on the ESE, the stockbroker will usually request the investor to open an account with them.
There are two (2) stock broking firms in Eswatini. Their full contact details are listed below.
AFRICAN ALLIANCE ESWATINI SECURITIES LIMITED (AAESL)
2nd Floor, Nedbank Centre, Cnr Sishayi & Sozisa Road
Mbabane, Eswatini, H100
Tel: +268 2406 6000, Fax: +268 2404 8391
SWAZILAND STOCKBROKERS LIMITED (SSL)
Ground Floor, Lilunga House, Gwamile Street
Mbabane, Eswatini, H100
Tel: +268 2404 4553/4549/4558
In order to open an account with a stockbroker you will be required to produce the below:
No! Any monies collected from investors are held separately from the Stockbroker’s own funds.
The stockbroker will advise you on which investments that are listed on the ESE are doing well. If you feel you like one of the investments and would like to purchase it, you fill out an “instruction form”. By filling out the instruction form you are authorising the broker to look for securities you wish to purchase on the ESE on your behalf.
Once this happens, the transaction shows as a trade on the ESE. However, if you are buying shares you only acquire formal ownership after three days because the transaction must first be cleared through the ESE systems. If you are buying debt securities, the transaction can clear on the same day.
The “T+3” trading system is the three-day process required for a transaction involving shares to settle on the ESE. Literally translated, it stands for “Transaction + 3 Business days”. In the case of debt securities, “T+0” is the trading system. In other words, the transaction settles on the same day as it takes place.
The ESE trades on business days Monday to Friday excluding public holidays. The ESE implemented its automated trading system on the 15th February, 2019. Trading occurs all day from 8am until 4pm.
Once again, the first step is to see a stockbroker who will guide you through the whole process.MONITORING YOUR INVESTMENT ON THE ESE
It is very easy to keep track of one’s investment on the ESE. Closing share prices can be obtained freely from the ESE as well as the website, www.ese.co.sz. They are also published during weekdays in the Times of Swaziland newspaper – business section.
Dividend per share (DPS) is the dividend paid per each company share. It is calculated by dividing the dividend paid by a company by the total number of shares a company has in issue. If for example a company has decided to pay a dividend of E1,000,000 and it has 500,000 shares in issue, then its DPS is E2 = E1,000,000/500,000 shares.
It must be noted that DPS takes into account all of the dividends paid by a company during the Financial Year. If for example a company paid an interim dividend of E2 and a final dividend of E2, then the DPS for the year is considered to be E4.
The P/E ratio is the result of dividing the share price of a company by its earnings per share (EPS): EPS is arrived at by dividing a company’s profit after tax by the number of shares a company has in issue. If for example, a company has made a profit after tax of E1,000,000 and has 1,000,000 shares in issue then its EPS = E1. If the share price of the same company is E5 on a given trading day, then the P/E ratio of the company is 5.
The P/E ratio is officially defined by the payback period from investing in a company’s shares. However, it can also be used as a measure of whether one’s investment is undervalued, valued correctly or overvalued.
The P/BV ratio is arrived at by dividing a company’s share price by its book value per share. A company’s book value is equal to its assets minus its liabilities. Book value per share can therefore be obtained by dividing a company’s book value by the amount of shares it has in issue. If therefore a company’s net assets were equal to E1,000,000 and it had 100,000 shares in issue, then its book value per share would be equal to E10. If at the same time the company’s share price = E10, then the company’s P/BV ratio would be = 1 – the share price (E1) divided by the book value per share (E10). The P/BV ratio is a good tool for measuring the value of an investment because it shows a company’s market value in relation to its assets. If a company’s P/BV is less than 1 it means its market price is less than the net value of its assets. This may mean that the company’s share price has some room to rise so as to reach parity with the value of its assets. If the P/BV ratio is more than 1, it usually means that the company’s shares are a premium investment, that investors see more in the company than is reflected by the value of its assets. All things being equal, the company’s P/BV ratio is supposed to be 1.
Dividend Yield (DY) is the dividend return that one obtains from holding a share at a given share price. It is calculated in percentage terms. It is arrived at by dividing DPS by a company’s last share price. If for instance a company paid a dividend of E10 and its last reported share price was E100, then its DY will be reported as being 10%.
The return on debt security – also known as its yield – is arrived at by adding the difference between its face value and its sale price to its coupon/interest rate then dividing that sum by the debt security’s sale price. For example, if a debt security had a face value of E100 and a coupon rate of 10% and one paid E98 for it, i.e. bought it at a discount of E2, one’s yield for the debt security would be:
(2+10)/98 = 12/98 = 12.24%
“E2” is the difference between the face value and what was paid for the debt security, i.e. E100 – E98, 10% is the rate of interest on the debt security and E98, is what was paid for the debt security.BENEFITS OF INVESTING IN ESE INSTRUMENTS
An investment in the ESE instrument is among the safest investments that one can make. All companies that have their securities listed on the ESE are required to publish in the national print media, information that can materially affect the value of the price of one’s securities. In addition, all are required to abide by the ESE’s Corporate Governance Code which has strict guidelines on how the management and directors of listed companies must conduct their affairs. Failure to publish information that can materially affect a company’s share price in the national press as well as not adhering to the ESE’s Corporate Governance Code can result in severe penalties for the directors and management of a company that has instruments that are listed on the ESE.
There are two principal ways in which a party benefits from investing in shares. The first is through the payment of a dividend, whilst the second is via the price appreciation of the shares that are bought, the share’s capital gain. Taken together, these two factors determine your return on holding shares in a company. If for example you bought a share for E10 and the share price has risen to E12 and you have received dividends worth E1 from the company that issued the shares, then your total return from holding share is 30% - the E2 price appreciation + the E1 dividend/E10 price paid for the share.
A dividend is usually a cash payment to the shareholder of a company. It is drawn from the cash reserves that a company has at the end of the year. Sometimes dividends can be issued by companies in other forms such as bonus shares.
Dividends are divided up among ordinary shareholders according to how many shares they own in a company. If for example a company pays dividends worth E1,000,000 and a party owns 10% of a company’s shares, then that party will receive dividends worth E100,000 – 10% of E1,000,000.
This is entirely up to the directors of the company and is dependent on how much free cash the company has. Generally though, most companies pay out dividends once a year. If a company has been operating favourably, it sometimes pays out dividends twice a year – usually every six-month period. A dividend that is paid out during the course of a company’s operating year is known as an interim dividend. A dividend that is paid out after the close of a company’s Financial Year is known as a final dividend.
Yes! Withholding Tax of 10% is payable on dividend income. The amount is usually deducted from source by the paying company. If for instance a person received dividends worth E100,000 what will actually be paid to that person will be E90,000 because E10,000 (10% of E100,000) will be deducted by the paying company to fund payment of Withholding Tax (WHT).
No. Each investor is responsible for ensuring that they comply with their tax obligations.
Capital gain/loss is the price appreciation/depreciation in the value of the shares held by an investor. It is the difference between the price at which an investor bought the shares and what the shares are worth today. If for example the price of a share was E10 when an investor bought it and it is worth E15 today, then the person who bought the shares has enjoyed a capital gain of 50% (E15 – E10 = E5)/E10. If however the price of the share has fallen to E5 then the investor that bought the shares at E10 has netted a capital loss of 50% (E5 – E10 = -E5)/E10.
No! There is absolutely no tax on capital gain on the ESE investment instruments.
There are two ways a party can benefit from holding debt securities. The first is through the payment of interest on the debt securities, whilst the second is through the gain in the price of a debt security from the time when it was first bought, the debt securities gain.
A debt security’s face value is its price as reported on its certificate of issuance. It is not necessarily the market value of a debt security. A debt security can for instance have a face value of E100 and be sold on the open market for E98. If a debt security trades on the market at a price less than its face value, it is said to be trading a discount. If it sells at a higher price than its face value.
Yes, it is! Holders of debt securities are charged 10% Withholding Tax on the coupon rate indicated on the debt security’s certificate of issuance. If for example a debt security had a face value of E100 and a coupon rate of 10% then the interest that will be received by the holder would be E9 because a Withholding Tax of 10% - E1 – would be assessed on the E10 (10% of E100) coupon payment due to the holder of the debt security. It is important to note that it is only the coupon rate that is taxed no the debt security’s overall yield.
No there is no tax on debt security’s capital gain.
You can lodge a complaint with the ESE. The ESE is empowered by the Securities Act and the Listings Requirements to ensure that the interests of investors are adequately protected.