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Old Mutual in Zim payout mess

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Pretoria - It's starting to look as if Old Mutual has committed a massive faux pas in the conversion of its interim dividend of 2.45 UK pence to Zimbabwe dollars.

Things are bad in Zimbabwe, but not quite as bad as Old Mutual seemed to think when it announced a few days ago that its modest interim dividend of 2.45p/share is equal to Zim$453 plus 12 zeros per share.

Even a quick calculation on the back of cigarette box suggests that they might be making a serious error.

The Reserve Bank of Zimbabwe's website gives the official exchange rate on November 13 - the day before Old Mutual announced its exchange rate - as fixed at Zim$16 094 per pound.

The appropriate official exchange rate for the 2.45p dividend should therefore have been about Zim$400/share. But Old Mutual says it's prepared to pay shareholders Zim$453 000 000 000 000 per share.

That's a bit different from the official exchange rate, but even our official sources on the ground say they have never heard of such a poor black market exchange rate.

In any case, Old Mutual is, like any other company, obliged to use the official exchange rate of Zim$16 094. This has since weakened to about Zim$75 000 per pound, but there is still no suggestion of all the zeros Old Mutual is using.

When Old Mutual issued a further Stock Exchange News Service (Sens) announcement on November 25 2008 saying: "The settlement of the dividends to shareholders on the Zimbabwe register has been held up due to difficulties currently being experienced by the Zimbabwe banking system," this old newshound got the whiff of something in the air.

And I suspect that something is the exchange rate used by Old Mutual, and not in fact the Zimbabwe financial system.

Matthew Gregorowski, the media spokesperson for Old Mutual in SA, issued the following information and assurance from London: "Old Mutual is entirely satisfied that the calculation of the dividend of Zim$453 000 000 000 000 per share is correct." He gave the firm undertaking on behalf of Old Mutual that it would pay this dividend to everyone holding shares on the Zimbabwe register.

According to my calculation using the official exchange rate, that's 12 zeros too many, and we can give three cheers for Old Mutual Plc's Zimbabwe shareholders. You are going to get an incredible dividend. That's a lot of money, even in a virtually worthless currency.

Gregorowski confirmed that there are just over 100 million Old Mutual Plc shares on the Zimbabwe register. The shareholders must therefore receive a total dividend of £2 450 000.

At the official exchange rate of November 14, this is Zim$39 plus 12 zeros. Old Mutual is now in fact going to pay out something like Zim$453 plus 20 zeros. No wonder the banking system can't handle it, if Old Mutual is correct in putting the blame there.

To place the figure in context, Fin24.com visited Zimbabwean property sales and rental portal - property.co.zw - to get an idea of house prices in the country.

A double-storey home on an acre of land with a double garage and double servants quarters in Glen Lorne, Harare North, is on sale for Z$5 100 000 000 000 000 (Z$5 100 and 12 zeros). With the dividend on just 11 Old Mutual shares (at Z$453 and 12 zeros), one could purchase this home. In British pounds, that's the equivalent of 28p!

Another home in Harare North, in the suburb of Greystone Park, is on sale for Z$150 000 000 000 000 - less a third of the Z$453 000 000 000 000 dividend on a single share being paid out by Old Mutual. Judging from the picture on the site, the home needs work, but it does have a three bedrooms and a double-storey cottage on the premises.

Gregorowski says that they calculated the appropriate exchange rate by adjusting the official exchange rate according to, among other things, the latest official inflation rate for Zimbabwe.

And Old Mutual won't be buying the Zim dollars on the official or the black markets.

It will in fact pay the dividends with the Zim dollars that its subsidiary in Zimbabwe earned and is now holding as cash. It will nevertheless be done through the bank sector (no one can count so many notes by hand).

In a press release headed "The rampant fraudulent activities on the stock exchange, in insurance, pension funds and the banking sector", Zimbabwe Reserve Bank governor Gideon Gono said: "I am pleased to report that the invisible forces of destruction have been unmasked."

I don't agree at all with what is going on in Zimbabwe at present and don't sympathise in the least with its government, but Gono really should conduct an inquiry into the local Old Mutual subsidiary's debit and credit entries, presumably at an exchange rate with 12 zeros more than that of the official exchange rate.

We are also looking forward to the correction of this dividend payment of Zim$453 plus 20 zeros by Old Mutual if our calculations are correct.

Any investors with Old Mutual shares on the Zimbabwe register should please let us know how much the dividend payment they receive amounts to.

- Fin24.com

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