NATIONAL Foods Limited (NatFoods) is mulling delisting from the Victoria Falls Stock Exchange (VFEX), nearly two years after the consumer staples concern joined the great trek to the United States dollar-denominated bourse.
In a recent cautionary statement, NatFoods said: “The group is considering delisting from the Victoria Falls Stock Exchange. Further details of the transaction will be provided to shareholders once all regulatory processes and further deliberations have been finalised.”
The proposed delisting, if it proceeds, will come as a shock to VFEX promoters who have been touting the bourse's avalanche of incentives to be an allure for counters to list on the foreign currency-only exchange.
The VFEX says companies listing on the bourse will be able to raise capital in hard currency.
In addition, potential issuers can use different securities to raise capital, that is, debt, equity, Depository Receipts, exchange traded funds (ETFs) and real estate investment trust (REITs) units.
All the companies that migrated to the VFEX said they were lured by incentives.
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VFEX trading costs are 2,12%, lower than the 4,63% prevailing on the Zimbabwe Stock Exchange (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 the United States dollar-denominated bourse say listing on the bourse entails US dollar financial reporting which contributes to a lower risk perception.
The US$ reporting gives the true value of a company in financial statements.
Resultantly, shareholders have adequate information to make investment decisions.
There have been concerns about financial statements of firms listed on the ZSE as they do not comply with international accounting standards.
This has seen companies' financial results attracting 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.
While NatFoods said it would inform shareholders on why it wanted to delist from VFEX, the bourse has been hit by United States dollar liquidity constraints that has hampered its growth.
In the half year ended June 30, 2024, the VFEX was nearly flat, with the All Share Index and market cap gaining 0,2% and 1,2%, respectively.
This was largely caused by a US dollar liquidity crisis, which is expected to slightly improve in the second half of the year as remittances increase, according to FBC Securities.
“Despite a widespread dollarisation trend, activity on the VFEX remains largely subdued with a number of counters trading at a discount to their fair value, creating pockets of value for investors,” FBC Securities said.
The securities firm said the growing use of the United States dollar in the economy was expected to result in an increase in US dollar surplus cash flows to individual and institutional investors.
The surplus funds will likely flow as investment funds to various investment vehicles, including VFEX-listed equities which are currently trading at a discount to their intrinsic values, it said, projecting a “flat to bullish” recovery of the VFEX, “which will be more substantial if new investment products such as ETFs, REITs and government debt instruments are listed on the bourse”.
While VFEX remains attractive to firms due to its incentives, liquidity constraints stand as the biggest threat to the growth of the bourse.