ZIMBABWE moved closer to the establishment of the Victoria Falls Stock Exchange (VFEX) on Friday, after the central bank and the Zimbabwe Stock Exchange (ZSE) signed an agreement setting out the terms of a settlement system for the stock exchange planned.
Regulators had previously approved a forex-denominated VFEX incentive package “very few countries have” to attract foreign capital to Zimbabwe and support hundreds of companies pushed to the brink by a long-lasting economic crisis.
There was a marked rush to bring the VFEX online after authorities realized that the ZSE, denominated in Zimbabwe dollars, had been put out of place by a relentless foreign exchange crisis and a listing drought of five years.
Without an initial public offering (IPO), ZSE was “dying a natural death,” according to CEO Justin Bgoni.
He also said that entering into a settlement services agreement with the Reserve Bank of Zimbabwe would be the last step before trading on the VEFX begins at the end of this month.
VFEX is a wholly owned subsidiary of ZSE.
The VFEX, which was licensed last month, targets foreign investors.
“The Victoria Falls Stock Exchange Limited (“ VFEX ”) is pleased to advise stakeholders on the signing of a Memorandum of Understanding (“ MoU ”) with the Reserve Bank of Zimbabwe (“ RBZ ”). which RBZ will provide assistance to settlement services for transactions carried out on VFEX in
currency, ”Bgoni said in a statement.
Details of the administration of FCAs (foreign currency accounts) eligible to participate in VFEX will soon be released by RBZ, the statement said. The government recently issued foreign exchange control regulations to allow investment and trading on the new VFEX. Under the regulations, securities listed on the Victoria Falls Stock Exchange will be negotiable and settled in US dollars or a convertible currency.
Local companies already listed on the ZSE can list on VFEX a maximum of 20% of their shares already listed on the ZSE, but these shares in foreign currencies must be financed from an offshore source or by free funds.
Foreign companies can be publicly traded, but any capital raised by these companies on the VFEX must come from an offshore source or from free funds.
A foreign company which has withdrawn from the listing of the ZSE during the five years preceding its listing on the VFEX must, however, reinvest or employ in Zimbabwe 20% of the capital raised on the VFEX no later than five years from the date on which it was raised.
Commenting on the development earlier, Bgoni said, “We realized that there have been very few IPOs in the past five years. There has been very little capital raising in the market. If a scholarship doesn’t bring new wickets and people don’t fundraise, it sort of dies of nature. It loses its relevance for the economy. We had to do something different to (attract) new IPOs or new listings in Zimbabwe. We tried to find out why potential businesses weren’t listed and there were three reasons. Our currency has not been stable lately. Businesses would tell us that they want to come and raise funds. Most of the time, they want to use that money to buy equipment in US dollars. But if the currency is volatile you don’t know how much you need. Most of these projects tend to be long term. We were losing the battle to interest foreign investors.