eBusiness Weekly
Rufaro Hozheri
It has been barely three years after its launch, the Victoria Falls Stock Exchange (VFEX) already made its mark in the Zimbabwean capital markets. Introduction of brokered accounts and the VFEX direct are some of the milestones achieved in the previous months.
The hard currency denominated exchange has attracted a number of companies, which have already migrated from the Zimbabwe Stock Exchange (ZSE) or are in the process of doing so.
Despite a very slow start, the VFEX has gained both momentum and popularity in past year or so.
Initially, when companies like Padenga and Bindura Nickel Corporation joined the Exchange, the rationale was to take full advantage of the lucrative export retention threshold.
I now get the sense that, this is no longer the only pulling force as some of the companies intending to migrate are not natural exporters.
As opposed to an Initial Public Offering (IPO), where the promoters of an entity decide to start selling its share for the first time, most of the counters on the VFEX were listed through a way of introduction.
Nevertheless, the bourse now has now six listings comprising of equities and deposit receipts whilst talks of Exchange Traded Funds, Real Estate Investment Trusts (REITs) and Fixed Income securities are underway.
This has sparked a common question amongst most capital markets participants whether we are going to witness a slow and natural death of the ZSE.
Amongst the other reasons why companies are abandoning the ZSE is the issue of preserving capital.
ZSE is local currency denominated and despite doing a very good job of hedging against inflation over the few years since we de-dollarised, the events of this year got most issuers to rethink their position.
It is safe to conclude that over 70 percent value in real terms was destroyed on the ZSE this year since the 2nd quarter.
Investors in companies like Getbucks Microfinance which is seeking to recapitalise through a rights issue would prefer to preserve their capital at the VFEX.
It will also be easier for these companies to attract capital beyond the Zimbabwean boarders.
There is an old adage which goes by, “The road to hell is paved with good intentions”.
In as much as most people think that this adage describes the VFEX — ZSE situation, I have a different view. I see them as more of complementing exchanges with the VFEX aiming to satisfy the needs Zimbabwean owned but foreign based issuers and mining companies whilst providing assets that are hard currency denominated.
The currency instability has however, motivated other companies which were not initially part of the target list, to seek migration.
Bearing in mind that the VFEX is a fully owned subsidiary of the ZSE, I think people need to understand that these moves we are witnessing are normal and we should continue to expect them until all the companies have decided which exchange better serve their needs. It is possible that, when the dust finally settles more companies would have moved to the VFEX, but it does not mean that the ZSE will naturally die.
Anyone taking the view that the exchanges are competing, has reasonable basis to think so given that some of the biggest companies like Padenga and Simbisa have already left.
The VFEX’s lower cost of trading also gives it an edge but my view is that in the long run the costs will become the same. With over 100 years of existence, and having faced multiple suspensions I think the ZSE has stood the test of time.
In the end what I am noticing is that for a moment it will continue to seem as if there is competition but with time the two exchanges will complement each other giving investors with different needs an array of investment opportunities. The idea of more than one stock exchange in a market is not new, and does not also mean the other one has to die.
