ZSE faces existential threat, but VFEX offers hope

The viability and sustainability of the Zimbabwe Stock Exchange (ZSE) is under threat as more companies are opting to delist from the bourse in favour of listing on the US dollar denominated Victoria Falls Stock Exchange (VFEX), Business Weekly can report.

While some see the migration to the VFEX as an undesirable threat to the existence of the ZSE, others see it as a better alternative to delisting and go private.

Most companies listed on the ZSE are at the moment reportedly considering delisting as they see no value on ZSE, opting to migrate to the US Dollar denominated exchange – the VFEX.

Major concerns by the companies include lack of liquidity on the ZSE as well as valuation challenges, hence migration to VFEX will enable them to realise real value.

Since the launch of VFEX in 2020, three counters have delisted from ZSE namely Seed Co International Limited, Padenga Holdings and Bindura Nickel Corporation.

Currently, Simbisa Brands is awaiting shareholder approval to delist from ZSE and migrate to the VFEX while National Foods Limited and Getbucks Microfinance Bank have issued cautionary statements on their intention to delist from the ZSE and move their shares to the VFEX.

Market analysts who spoke to Business Weekly said most companies on the ZSE are currently at below replacement value, hence migration to the VFEX will bring recourse.

Investment analyst, Enock Rukarwa, said the VFEX has an enabling environment for potential Issuers in the form of 100 percent retention thresholds for incremental export returns and ability to raise money.

“Besides an encouraging policy framework the VFEX has been less predisposed to systematic risk compared to the ZSE taking a cue from the May 2022 Government raft of measures,” he said.

He said scope and value creation presenting the VFEX can be an optimal listing Authority especially for foreign currency generating companies.

Batanai Matsika, the head of Research at Morgan and Co, said for some companies, it makes sense to migrate to the VFEX especially coming from a USD operating environment.

“Looking at Simbisa they are predominantly a USD business. Therefore, it makes sense for them to list on the VFEX and also for prospects of capital raising,” he said.

He added if more companies decide to migrate from the ZSE that will make sense because from a capital raising perspective and knowing that companies really need foreign currency for expansion.

However, ZSE chief executive, Justin Bgoni, said the VFEX was launched to complement ZSE, and the establishment of the forex bourse actually benefits both investors and issuers.

He added that migration from the ZSE to the VFEX by issuers is purely a business decision done with the approval of the company’s board of directors and its shareholders.

“In that regard, our issuers are diverse covering various sectors with different business needs, therefore we believe that the ZSE will remain relevant,” he said.

Bgoni said in terms of the valuation of the market, ZSE cannot control the opinion of the market.

However, its role as the exchange is to encourage price discovery by ensuring that shares are fairly valued and this is being achieved by ensuring adequate and timely disclosure by listed companies and broadening investor knowledge.

“To promote liquidity, we have come up with several initiatives as the exchange which include promoting the development of a diverse investor base by encouraging retail participation, which has been made easier with ZSE Direct,” he said.

He said other initiatives include increasing the pool of securities and in 2022, ZSE has witnessed the listing of four Exchange Traded Funds (ETFs),

totalling five ETFs on the ZSE and an upcoming listing of the first Real Estate Investment Trust (REIT) by Tigere in November 2022.

“For the ZSE, our aim still remains to grow listings and increase our products, therefore our focus is to increase the diversification of securities on the ZSE, whilst on the VFEX also attracting new securities.

“We are excited about the prospects of the listing of Nedbank Zimbabwe Depository Receipts (ZDRs) in November 2022 and the US$50 million bond by Karo Platinum Mine,” said Bgoni.

He said the ZSE’s other focus is to grow the participation of retail investors on the VFEX, which led to the launch of the VFEX Direct in September 2022 and will continue to ensure that the ZSE adds features on the platform that aid in increased retail participation.

“The listing of the Nedbank ZDRs in November 2022, is an opportunity for the retail investors to participate on the exchange, while the launch of Contract for Differences (CFD) rules as a new product on the VFEX will also aid in retail participation,” said Bgoni.

Simbisa in its pre-listing statement said the migration to the VFEX will enable the group to attract foreign currency capital from investors to match the business’s foreign currency needs.

The company’s Board has since approved the transaction hence the group is now moving to seek shareholder approval at an extra-ordinary general meeting to be held on November 18, 2022.

Addington Chinake, the group’s non-executive chairman, said the company is seeking to take advantage of offshore settlement options, which allow investors to efficiently repatriate their dividends.

“This would also eliminate the foreign currency risk of holding Simbisa shares as a foreign investor,” he said.

He noted the VFEX has lower trading costs compared to the ZSE and also has tax incentives that enable the investor to retain more of their returns compared to the ZSE.

“Overall, better investment terms would promote liquidity in the trading of Simbisa shares, making them more attractive to investors.

“The VFEX listing will also elevate Simbisa’s local and international profile thereby boosting its public and commercial standing,” said Chinake.

Simbisa has continued to record strong year-on-year growth in customer counts and its restaurants served over 52,3 million customers, up 28,6 percent from the prior year.-ebusinessweekly