A Financial Economics Perspective for Policy Planners and Investors
By Newton M. Mambande
1. The Context: Legacy Debts and Market Memory
HARARE – OLD Mutual Zimbabwe Limited (OMZIL) does not operate in a vacuum. Its balance sheet still carries the scars of Zimbabwe’s two decades of macroeconomic volatility. The “legacy debts” in question are largely pre-2009 liabilities denominated in Zimbabwe dollars that were rendered worthless by hyperinflation, then re-denominated under the 2009 multi-currency regime and again under the 2019 currency reforms. Insurers, banks, and pension funds were left with mismatched assets and liabilities, eroding trust in long-term savings.
To understand why OMZIL’s proposed introduction of preferential shares matters in 2026, we must first trace how two earlier financial innovations—fungible shares and demutualisation—shaped Zimbabwe’s financial history from 1999 to 2020 and gave OMZIL a structural edge over rivals such as Zimnat Insurance Company, First Mutual Holdings Limited (FMHL), and ZB Financial Holdings Limited (ZBFH).
2. Fungible Shares: The Bridge Between Harare and Johannesburg, 1999–2018
In 1999, Old Mutual plc listed on the London Stock Exchange and simultaneously on the Zimbabwe Stock Exchange via a fungible counter. The OMZIL fungible share allowed investors to buy Old Mutual shares in Harare and sell them in Johannesburg or London, and vice versa, at a near 1:1 ratio adjusted for exchange costs.
This structure mattered financially for three reasons. First, price discovery. For a decade, the Old Mutual Implied Rate (OMIR)—derived from the ZSE-JSE price gap—became Zimbabwe’s de facto exchange rate. When the official rate was 1:1 in 2008, OMIR signaled 1:10,000, revealing true inflation. Policy planners used OMIR to gauge parallel market pressure. Second, capital mobility. Despite exchange controls, fungibility gave pension funds and insurers a legal USD hedge. OMZIL policyholders were indirectly invested in a hard-currency asset when local savings were being eroded. Third, it was a confidence anchor. During the 2008 hyperinflation, OMZIL was one of the few institutions still paying claims, because its parent’s offshore reserves could be accessed via fungible mechanisms.
The impact from 1999 to 2020 was significant. The fungible structure helped ring-fence OMZIL from the worst of local monetary failure. Competitors without an external parent or fungible line, including Zimnat and FMHL, had to rely more heavily on local T-bills and property, which lost substantial real value. According to IPEC data from the period, by 2015 OMZIL’s reported market share in life assurance was approximately 58%, compared with FMHL at 18% and Zimnat at 9%. Social confidence in insurance is path-dependent; households remember who paid in 2008. The Reserve Bank of Zimbabwe suspended fungibility in March 2020, citing its role in exchange rate speculation. Overnight, the OMIR mechanism ceased. But the institutional memory remained: OMZIL had provided a hard-currency shelter when the system failed.
3. Demutualisation: Converting Policyholders into Shareholders, 1999–2001
Old Mutual was founded in 1845 as a mutual society in Cape Town. Demutualisation in 1999 converted it into a public company. Zimbabwean policyholders received free shares in Old Mutual plc, listed in London, Johannesburg, and Harare.
Demutualisation shaped Zimbabwe’s financial history through three channels. The first was the wealth effect. Over 250,000 Zimbabweans became offshore shareholders at no cost. In 2000, those shares were reportedly worth approximately US$1.2bn, equal to about 20% of GDP at the time—one of the largest wealth transfers to individuals in Zimbabwe’s history, seeding a retail investor culture. The second was market depth. The ZSE’s market capitalization rose by approximately 40% in 1999. Liquidity improved because demutualised policyholders traded actively, training a generation of brokers. The third was a governance shift. Mutuals are owned by policyholders; public limited companies are owned by shareholders. Demutualisation forced OMZIL to adopt London-style governance, IFRS reporting, and risk-based capital models roughly ten years before IPEC mandated them. That head start may explain OMZIL’s solvency ratio of 210% in 2024 versus FMHL’s 165% and ZBFH’s 140%. Competitors remained mutual or privately held for longer; Zimnat demutualised only in 2018. The delay, some analysts argue, may have constrained their access to external capital during the 2019 currency crash.
4. The 2026 Proposal: Preferential Shares to Address Legacy Debt
OMZIL now proposes to issue non-redeemable, non-voting preferential shares to qualifying pensioners and policyholders who suffered loss of value from the 2000–2008 and 2019 currency conversions. The instrument is expected to carry an 8% fixed dividend, paid quarterly in USD or ZiG equivalent, and will rank above ordinary equity but below debt. The stated purpose is to convert an approximately US$120m actuarial legacy liability into equity, removing it from the balance sheet without immediate cash outflow. The preference shares are expected to be backed by OMZIL’s 22.2% stake in Nedbank and 60% of its CABS property portfolio—both USD-generating assets.
From a financial economics standpoint, swapping debt-like liabilities for equity is theoretically neutral under Modigliani-Miller. In Zimbabwe’s context, however, it may not be. Legacy debts are contingent, illiquid, and subject to litigation. They inflate regulatory capital charges under IPEC’s risk-based framework. Converting them to preference shares could reduce the Solvency Capital Requirement by an estimated 18%, potentially freeing approximately US$22m for underwriting. For policyholders, preference shares offer a defined income stream versus an uncertain court settlement. For OMZIL, this would replace a volatile court-driven liability with a fixed-cost instrument. This resembles a Coasean bargain: lower transaction costs may raise total surplus.
5. How Preference Shares Could Boost Local and Global Investor Confidence
In the local market, clarity often drives re-rating. ZSE investors tend to punish uncertainty. Since 2020, OMZIL has traded at approximately 0.4x embedded value versus Sanlam’s 1.1x in South Africa. The overhang of legacy claims appears to be a key discount. Resolution of that overhang could potentially re-rate the stock, supporting the broader ZSE Financials Index. Insurance uptake might also improve. IPEC 2025 data shows insurance penetration at 3.1% of GDP versus 17% in South Africa. The main reason cited in surveys is fear of value loss. A USD-linked preference share tied to old policies could serve as a credible signal that OMZIL honors contracts. New business at CABS, Old Mutual Life, and RM Insurance could potentially rise by an estimated 12–15% post-issue, according to preliminary market analysis.
Globally, three effects may matter. First, ESG and governance. Global allocators have historically avoided Zimbabwe due to policy risk. A voluntary, market-based legacy settlement aligns with UN PRI principles and could reduce contingent sovereign risk. Second, index inclusion. FTSE and MSCI require free float and clean balance sheets. Removing legacy debt could lift OMZIL’s investability weight, potentially attracting passive flows estimated at US$40m. Third, peer arbitrage. ZBFH trades at approximately 0.3x book and FMHL at 0.6x. If OMZIL re-rates to 0.8x following the preference share issue, it could encourage competitors to address their own legacy books, potentially lifting sector multiples.
6. The Samuel Matsekete Factor: Execution Risk and Credibility
Group chief executive officer Samuel Matsekete, appointed in 2022, is central to this proposal’s credibility. A chartered accountant and former Deloitte partner, Matsekete led OMZIL’s US$120m real estate revaluation in 2023 and the unbundling of its Malawi business in 2024. His role matters for three reasons. On technical competence, Matsekete’s team reportedly designed the preference share as a Solvency II-compliant Tier 1 instrument, seeking IPEC and RBZ approval. His public actuarial roadshows have been associated with a reported reduction in policyholder litigation of approximately 30% since 2024, according to company disclosures. On market signaling, leadership is often a proxy for governance in thin markets. Under Matsekete, OMZIL’s cost-to-income ratio fell from 62% to 49%, ahead of ZBFH at 71% and FMHL at 58%. He has committed to paying preference share dividends from offshore dividends received from Nedbank, thereby de-linking them from ZiG volatility. On stakeholder trust, Matsekete chairs the Insurance Council of Zimbabwe. His framing of the preference shares as “restorative justice, not charity” has reportedly won buy-in from some pensioner groups and the Ministry of Finance. In financial economics, management quality is an intangible asset. OMZIL’s 2026 proposal is considered bankable partly because Matsekete is perceived as bankable.
7. Competitive Context: OMZIL, Zimnat, FMHL, ZBFH
OMZIL’s edge appears to come from three path dependencies: fungibility provided USD assets, demutualisation provided governance, and scale provided data for pricing. The preference share proposal now addresses a remaining balance sheet weakness. Competitors, lacking a fungible parent or similar offshore dividend streams, may find it difficult to replicate the offer without diluting shareholders.
8. Recommendations for Policy Planners and Clients
For IPEC: Fast-track approval and consider using OMZIL’s preference share structure as a template. Consider mandating all insurers to ring-fence legacy liabilities by 2028.
For the RBZ: Allow preference share dividends to be paid from approved offshore sources without surrender requirements. This would help monetize trust.
For the Ministry of Finance: Consider offering a modest tax rebate (e.g., 5%) on preference share dividends to encourage uptake and deepen the ZiG yield curve.
For qualifying policyholders: After seeking independent financial advice, clients may wish to consider accepting preference shares. A regulated 8% USD yield, if implemented, would exceed most bank deposit rates and could offer a better net present value than litigation.
For institutional investors: Some analysts suggest overweighting OMZIL relative to peers until competitors announce similar legacy cleanses, with a potential re-rating alpha estimated at 30–40%, though this remains speculative.
9. Conclusion: From Liability to Leverage
Fungible shares taught Zimbabwe that capital respects property rights. Demutualisation taught that transparency pays. Preferential shares now offer a lesson: old wounds can be converted into new capital. If executed under Samuel Matsekete’s leadership, OMZIL’s proposal may not just settle a debt—it could help reset the risk premium for Zimbabwe’s entire financial sector. That is how you build confidence: not with slogans, but with instruments designed to survive the next crisis. In financial economics, trust is the cheapest form of capital. OMZIL is attempting to print it.
Newton M. Mambande is an entrepreneur and researcher with published scientific scholarship in peer-reviewed journals. He can be reached at newtonmunod@gmail.com or +263773411103.
⚖️ Legal & Investment Disclaimer
This article is for informational and commentary purposes only and does not constitute financial, investment, legal, or tax advice. The analysis and opinions expressed are those of the author based on publicly available information and reported data as of the date of writing. Past performance does not guarantee future results. Any forward-looking statements, estimates, or projections are inherently uncertain and may not materialize. Old Mutual Zimbabwe Limited’s preference share proposal has not necessarily received final regulatory approval; readers should verify all details with official sources. Nothing herein should be construed as a recommendation to buy, sell, or hold any security or financial instrument. Readers and investors are strongly advised to consult their own independent financial, legal, and tax advisors before making any investment decisions. The author and publisher disclaim any liability for any loss or damage arising directly or indirectly from the use of this article.
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