Be cautious on migrating to VFEX

LEADING asset management firm, Imara Capital Zimbabwe, has warned local companies to be cautious before migrating to the United States dollar-denominated Victoria Falls Stock Exchange (VFEX) that is faced with liquidity challenges.

The VFEX, which is a wholly-owned subsidiary of the Zimbabwe Stock Exchange, was launched towards the end of 2020 setting the tone for the operationalisation of the Victoria Falls Special Economic Zone — one of the initiatives being implemented by the Government to stabilise the economy and attract foreign direct investment.

Since its launch, the foreign currency-denominated offshore securities trading platform, has been anticipated that VFEX would be a game changer in the trading of securities in Zimbabwe as well as acting as a conduit for portfolio investments and foreign direct investment in the rest of Africa in hard currency.

Against this background, some of the ZSE-listed companies have either migrated or announced the intention to migrate to the VFEX while not much progress in terms of new listings by foreign investors or firms have been noted on the Victoria Falls-based bourse.

Speaking at the Confederation of Zimbabwe Industries (CZI) 2023 Annual Economic and Business Symposium in Harare recently, Imara Capital Zimbabwe chief investment officer, Shelton Sibanda, said in recent weeks, there has been a “Great trek” of ZSE-listed firms moving to the VFEX.

“We have seen in recent weeks a Great trek if I can use that phrase, where a lot of companies have been moving across because of the challenges that the ZSE has had particularly last year mainly due to pricing issues and also sort of increased regulation within that space.

“It’s okay that we have the VFEX but let’s not forget that the ZSE has always had some of these advantages. In recent weeks, we have seen a lot of companies moving across . . . but our biggest concern is that these have not been newer listings per se, they have been coming from the ZSE. And the level of cannibalisation of the ZSE is quite high,” he said.

“What we need is for the VFEX to create its own new listings not necessarily to kill the existing ZSE. There are companies that have announced their intention to move across. If you look at the contribution of these companies in terms of activity on the ZSE is quite high averaging about 35 percent, all this will disappear once these companies move across there.”

Some of the ex-ZSE-listed companies that have drifted to the VFEX are Bindura Nickel Corporation, Padenga Holdings, Simbisa Brands Limited, National Foods while Caledonia Mining Corporation Plc, a global giant investor that owns Blanket Mine in Gwanda and is expanding its assets in Zimbabwe, has come in as a new foreign listing on the bourse.

So far, Sibanda said there is not much activity taking place on the VFEX.

“What we want to say is let’s be very cautious before we make the move across there. Liquidity constraints are sort of to remain there and they will likely remain for a longer period there.

“Padenga Holdings was averaging about three million shares per month on the ZSE translating to about US$700 000, but post-listing on the VFEX, its volumes have dropped significantly to about 25 percent of its prior volume trading
about 700 000 shares, which in US$ terms translates to about US$120 000 per
month.

“So, you can see how the value and volume have dropped significantly across the migration.”

“We are not saying that is the trend that is likely to be maintained, but for that to change, there are two things that need to happen.

“The first one is that we need to begin to see local investors, particularly pension funds increasing their contribution in US$,” he said.

Sibanda said pension funds are needed to contribute United States dollars so that there is liquidity to facilitate active trading on the VFEX.

“Alternatively, we would need foreign investors to come back . . . between 2009 and probably before the end of the Inclusive Government around 2014, we had a net foreign inflow coming through into the stock market from the foreign portfolio investment perspective.

“This was critical because it helped give us certain liquidity but at the moment the VFEX has been left basically for local investors, its only local investors that are to try and get the market going, there is not enough of that US$ liquidity,” he said.

Sibanda said attracting foreign investors to the VFEX is not easy due to a number of factors that include issues around policy consistency.

For instance, one of the incentives that had been created to attract companies into the VFEX was the retention of 100 percent of the firm’s incremental export incentive, but this has been scrapped in the 2023 monetary policy statement.

“This means we will struggle to attract foreign investors and foreign listings on the VFEX so, it’s all those issues that are within our control that we need to handle,” he said.-ebusinessweekly