VFEX: Greenback’s pulling power

CLOTHING manufacturer and retailer, Edgars Stores Limited, will soon exit the Zimbabwe Stock Exchange (ZSE) and list on the Victoria Falls Stock Exchange (VFEX) lured by incentives on the United States dollar-denominated bourse. The consumer discretionary concern announced the plans in a cautionary statement released on Wednesday, adding that further details of the transaction would be provided to shareholders once all regulatory processes had been finalised.

“The directors of Edgars Stores Limited wish to advise all shareholders and the investing public that the board, subject to shareholder approval and the granting of all necessary regulatory authorisations, has approved the delisting of the company from the ZSE, immediately followed by its listing on the VFEX,” company secretary Chipo Mafunga said.

Today it is Edgars that is migrating to the VFEX. Last year, six companies listed on the bourse. Of the six, five — Innscor Africa Limited, Axia Corporation, African Sun Limited, First Capital Bank and Zimplow — listed on the dollar-only bourse after delisting from the ZSE. WestProp Holdings Limited listed on the VFEX after an initial public offering.

Statistics are frightening. Out of the 14 equities and fixed income securities listed on the VFEX since it debuted in 2020, 10 issuers migrated from ZSE. This put paid to fears that VFEX would cannibalise the local currency bourse as companies migrate to the dollar-denominated bourse.

All the companies that opt for the VFEX say they are lured by incentives.

VFEX trading costs are 2,12%, lower than the 4,63% prevailing on the ZSE. Foreign shareholders have a 5% withholding tax on dividends compared to a withholding tax of 10% for non-resident shareholders on the ZSE.

Companies that migrate to VFEX say a listing on the bourse entails US dollar financial reporting which contributes to a lower perception risk.

The US$ reporting gives the true value of a company in financial statements. Resultantly, shareholders have adequate information to make investment decisions.

This comes on the back of concerns about financial statements of firms listed on the ZSE as they do not comply with international accounting standards. This has seen companies with qualified or modified opinions from auditors.

Listing on the dollar-only bourse grants companies access to offshore settlement which allows for efficient dividend repatriation for foreign shareholders. Firms listed on the ZSE have been struggling to repatriate dividends to foreign shareholders due to a dollar crunch in the economy.

Work is cut out for ZSE and the capital markets regulator to protect the bourse from further cannibalisation.

Government must remove restrictions on the buying and selling of shares on the ZSE. This entails a removal of the 4% capital gains withholding tax which punishes the selling of securities within 270 days of the date of purchase.

Government believes selling securities within 270 days will fuel speculation and lead to the rout of the local currency. The two are not linked as the current sharp depreciation of the Zimdollar against the greenback with the restrictions in place has shown.

In the absence of incentives on the local currency bourse, the question will always be who is next to migrate to VFEX as king dollar rules the roost.