Ceteris Paribus: Bite-size snapshot of the VFEX activity flurry

Victoria Falls Exchange (VFEX)

THE past six weeks have brightened the outlook for Zimbabwe’s forex-denominated bourse, the Victoria Falls Exchange (VFEX) as it saw a flurry of activity with four counters set to list on the market. This is after the bourse failed to gain traction, attracting just four listings and recording low transaction volumes since its inception in October 2020.

Currency woes, unbridled inflation and persistent government interference with the market as the government blames the stock market for speculative activities and capital flight, have cast a shadow on Zimbabwe’s main stock market, the Zimbabwe Stock Exchange (ZSE). In 2020, Treasury halted trade on the ZSE for several weeks and extended a heavy hand to suspend fungible stocks PPC, Old Mutual and SeedCo Ltd. Old Mutual and PPC remain suspended.

Innscor spin-off Simbisa Brands on September 27  expressed an impending departure from the ZSE for the USD-denominated bourse — the VFEX — to become the second Innscor off-shoot on the new market after Padenga Holdings.

Set up to lure foreign investment, the VFEX also currently houses Bindura Nickel Corporation, SeedCo International, and New York and London-listed miner Caledonia (NYSE: CMCL), (LSE: CMCL).

After 52 years of listing on the ZSE, Innscor subsidiary and Tiger Brands (JSE: TBS) associate National Foods (Natfoods) on October 31 indicated that it will delist from the ZSE for a VFEX listing. The largest food processor in Zimbabwe, Natfoods had a market cap of ZWL57,38 billion on Tuesday, November 2, whose stock had shed 19,82% of its value since the start of the year.

In October, Karo Mining Holdings (formerly Karo  Resources), a subsidiary of JSE-listed miner Tharisa Plc (JSE: THA) announced the floating of a US$50 million unrated bond — a first for the VFEX. The US$-denominated bond will be issued through private placement, with the earnings used to partly finance the Karo platinum project and will be guaranteed by the firm.

In the same month, Nedbank’s Zimbabwean unit announced plans to list on Zimbabwe’s VFEX. Nedbank will list its Zimbabwe Depository Receipts (ZDR) on the VFEX on November 18 2022. (A depositary receipt is a locally-listed negotiable certificate, a financial instrument issued by a bank, representing shares of a foreign entity.)

As a backdrop, Old Mutual Plc (JSE: OMU), concluded the unbundling of Nedbank in October 2018 in which OMU shareholders received shares in the bank. Following the unbundling, investors from Zimbabwe ended up owning Nedbank shares that were unavailable for local trading. The listing of the ZDR will eliminate this challenge and unlock value for Nedbank shareholders.

The ZSE is currently the worst-performing stock market in Africa having waned 76,28% year-to-date; on October 27 in USD terms; whose market capitalisation has plummeted to ZWL 1,83 trillion from a high of over ZWL3,5 trillion earlier this year. The dark cloud that currently hangs over the ZSE has created an opportunity for the VFEX to gain traction.

Incentivising listings on the VFEX is the prospect of attracting foreign currency capital from investors, the aim of allowing shareholders to realise the USD value of their holdings, and enabling investors to efficiently repatriate their dividends plus the associated tax incentives.

The implication for the ZSE is that the market cap of the overall market will decline considering two heavyweights are set to exit the market. If the economic instability persists, more counters will follow suit. Innscor linked Padenga, Natfoods and Simbisa exited already. It would not be surprising to see Innscor and its spin-off Axia follow suit in 2023. Affected Exchange Traded Funds will of course be reconstituted to reflect the changes resulting from the exit of constituent stocks.

The VFEX will likely attract more counters, increased investment and higher liquidity going forward.

Mabunda is an analyst and TV anchor at Equity Axis, a leading financial research firm in Zimbabwe. —  [email protected]


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