Is dollarisation driving more firms to VFEX?
AS more companies continue to delist from the Zimbabwe Stock Exchange (ZSE) to join its foreign currency-denominated subsidiary, the Victoria Falls Stock Exchange (VFEX), market players appear to suggest that the growing dollarisation of the economy could be the driving force.
With official statistics indicating that foreign currency trading now constitutes about 80 percent of Zimbabwe’s business, more businesses have shown a higher appetite for forex, and authorities blame this for piling pressure on the exchange rate, which is linked to the latest depreciation of the local dollar at both official and parallel markets.
In their financial reports, listed companies have also expressed concern over the adverse impact of the resurgent inflationary forces on the value of the Zimbabwean dollar as a store of value.
Zimbabwe Stock Exchange
On Friday, First Capital Bank, which has seen a growth in its US dollar loan book and balances to over 70 percent, became the latest firm to officially join VFEX with BridgeFort Capital Limited, formerly MedTech Holdings, also hinting at plans to migrate from ZSE citing the increasing dollarisation of the economy.
The diversified firm stated in its latest trading update for the first quarter ended March 31, 2023, that while it continues to pursue transactions to broaden its investment portfolio, the now dominant preference for share trading in US dollar instead of the local currency was affecting its operations as most of its deals are hampered.
“While several deals have been, and are still being pursued, progress has been hampered by the preference for share trading in USD instead of local currency,” the firm’s chief executive officer, Mr Vernon Lapham, said.
“The company remains focused on the conclusion of acquisitions that are in the works whilst considering a migration to the Victoria Falls Stock Exchange at the appropriate time.”
During the ongoing financial results reporting season for the first quarter, several listed firms also noted increased dollarisation of the economy due to unstable exchange rates.
Other companies have said the current reporting framework, which is based on the local currency and upon which adjustment is made for hyperinflation, has created substantial complexity in the reporting process and volatility in the reported numbers.
Therefore, by listing on VFEX, they will report its financial performance in US dollar, which is a stable currency that will assist current and potential investors to better understand the performance of their entity.
In February, during the Confederation of Zimbabwe Industries (CZI) annual economic and business outlook symposium, Mr Shelton Sibanda of Imara Asset Management Zimbabwe (IAMZ) noted that the intensified dollarisation in the economy, has seen an increase in the number of counters and securities migrating to VFEX.
First Capital Bank has said the potential increase in the US dollar earnings increases the shareholders’ expectation to receive their return in US dollar through US dollar dividends and US dollar capital gains on share disposal, which the VFEX offers in comparison to the ZSE.
Confederation of Zimbabwe Industries
General Beltings has said during the period under review, the official exchange rate was under pressure as there was increased dollarisation in the economy in the absence of affordable local borrowings.
“The quarter was constrained by dampened local aggregate demand while the increased dollarisation encouraged imports at the expense of local industry,” it noted.
Mashonaland Holdings also said the first quarter was characterised by depreciation in the local currency exchange rate.
FBC Holdings
Financial services concern FBC Holdings Limited said currency instability coupled with other macro-economic risks, is posing a major threat to business viability and prospects.
However, the Government has said the recent measures announced by the Treasury are expected to stabilise the exchange rate and the economy going forward.
The USD-denominated VFEX is a subsidiary of the ZSE launched in 2020 as an off-shore financial services centre.
It is the only exchange in Africa trading in the United States dollars and was established as a pioneer offshore financial services centre by the Government in line with Vision 2030, which requires a lot of foreign investment as the country needs a vehicle that will make it attractive to foreign investors.-chronicle
