Five counters have announced plans to de-list from the Zimbabwe Stock Exchange (ZSE), precipitating fears that a new forex-denominated bourse planned for Victoria Falls could ground one of Africa’s oldest capital markets.

Regulators have granted a series of approvals for the upcoming Victoria Falls Stock Exchange (VFEX), which edged closer to operations last week, after inking a deal with the central bank spelling out terms of a settlement system.

However, ahead of last week’s agreement, market watchers had been shaken by a string of announcements by ZSE counters, including Falgold, Dawn Properties, ZimRe Property Investments and the Seed Co group laying out road maps for terminating their listings.

In a flurry of de-listing that hit the ZSE from 2011, exiting firms have indicated that maintaining a presence on a bourse that has suffered prolonged IPO droughts had turned into a nightmare.

But this week, a leading capital markets advisory hinted that there could be more to the latest de-listing frenzy, coming as the ZSE faces its first real challenge from its ultramodern and strategically established offspring, the VFEX.

VFEX will operate as a wholly owned subsidiary of the ZSE.

In a paper obtained by business digest, researchers at Morgan & Co warned there could be a risk the ZSE will be “cannibalised” by the VFEX unless stock market bosses play their card maturely.

Is there any strategic logic for an issuer to list on the ZSE only to raise capital in Zim dollars?” Morgan & Co queried in a paper titled Economics and Market Intelligent Report, October 7, 2020.

We are witnessing a wave of voluntary de-listings from the ZSE for various reasons. Falgold has scheduled an extraordinary general meeting where it will seek shareholder approval to terminate its ZSE listing. Boundary Investments, a wholly owned subsidiary of New Dawn Mining Corp. will make a cash offer of 13c per share to minority shareholders. Dawn Properties is also set to de-list from the bourse after African Sun Limited made an offer to acquire 100% shares in the company in a deal that will see it assume ownership of the firm’s key assets. ZimRe Properties will also be de-listed given that ZimRe Holdings Limited (ZHL) is seeking to acquire the entire shareholding of ZPI and make a simultaneous application for de-listing,” Morgan & Co said.

Is the soon to be launch VFEX already cannibalising the ZSE? It is too early to be sure, but one thing that should be pondered on is; what will remain of the ZSE? It is puzzling to imagine that folks in Zimbabwe can buy a litre of petrol, beer pints, pieces of land and even properties in US dollars but still go ahead and acquire shares on the markets using ‘mickey mouse (Zimbabwe) dollars’.”

If the five counters exit the ZSE, they will join three blue chip counters with fungible stocks that were suspended in June after a bull run sparked jitters within the ruling Zanu-PF party, which felt the stock market had emerged as the new front for its so called regime change agenda.

Financial services giant Old Mutual Limited, Seed Co International and cement maker PPC remained closed when the ZSE reopened in August after a week hiatus, with authorities requesting them to switch to the VFEX when it opens this month.

Shares in Seed Co, Old Mutual and PPC also trade on other stock exchanges.

Seed Co has a primary listing on the Botswana Stock Exchange, while the other two are also listed on the London Stock Exchange and the Johannesburg Securities Exchange.

Before their suspension, authorities argued that shares for the three counters shares we being manipulated to cause an inflationary spike.

On Monday, Caledonia Mining Corporation became the first company to confirm its listing on the new bourse.

We understand that the proposal is for the exchange to trade solely in US dollars and would expect this continued assurance,” a company official told Bloomberg.

Morgan & Co said it was casting its sights beyond general sentiment.

In a way, the firm is convinced that deserting counters could be seeing a future on the VFEX.

According to VFEX listing rules, ZSE listed local companies will be able to list on the VFEX if the company is listing 20% or less of its capital,” the report said.

In addition, there is an option to entirely de-list from the ZSE and list 100% on the VFEX. Overall, given the capital need (in USD) of most ZSE-listed businesses, the VFEX appears to be offering a better capital raising proposition than the ZSE. The ability to raise international capital (foreign currency) is critical for boosting company productivity. In addition, the de-listings and shifts to VFEX by top tier counters like Old Mutual Limited, PPC and Seed Co International implies limited depth for investors on the ZSE. The architects of these two exchanges will have to (be) smart and genuinely innovate so as to avoid cannibalisation. Otherwise the success of the VFEX could trigger the death of the ZSE.

Morgan & Co may not be the only analyst fearing that the ZSE may be affected by new dynamics. In August, ZSE chief executive Justin Bgoni said the bourse had been thrown into irrelevance by foreign currency dynamics.

He said the bourse risked “dying a natural death” after going through half a decade without securing an IPO and “registering very little capital raising” transactions.

We realised that there has been very few IPOs in the last five years,” Bgoni said.

There has been very little capital raising on the market. If a stock exchange is not bringing new counters and people are not raising money on it, it kind of dies a natural death.

Credit: Newsday

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