THE Victoria Falls Stock Exchange (VFEX) will turn four years old later this year and, like any newborn, it is beginning to establish its own identity and operate with minimal support from its parent.
The VFEX is a wholly-owned subsidiary of the Zimbabwe Stock Exchange (ZSE), and much like in a biological mother-child relationship, its breastfeeding days are over, or at least nearing an end.
The stock exchange, a hard currency-denominated bourse and unique in the region, was founded with a clear vision to create an Offshore Financial Services Centre (OFSC).
One of its goals was to list foreign companies with local operations and locally-owned companies with an international presence.
It offered key attractions, including the currency of trade and lower transaction costs, among other factors.
Given the currency challenges the country faced at the time, it made sense for issuers wanting to list on an exchange but having little appetite for currency risk to consider the VFEX.
It is also important to remember that the VFEX was launched a few months after its parent exchange had been suspended from trading, accused of undermining the exchange rate and causing economic volatility.
When the ban on the ZSE was eventually lifted, three counters, namely Old Mutual PLC, PPC, and Seed Co International, remained suspended from trading, and fungibility was banned.
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Fungibility in stocks refers to stocks that can be bought on one exchange and transferred and sold on another exchange where they are also listed.
To maintain the ban on fungibility and avoid creating implied exchange rates if a counter is listed on both exchanges, companies were encouraged to delist from the ZSE and list on the VFEX, instead of maintaining a dual listing.
This led to the term “migrating” becoming popular in the Zimbabwean capital markets lexicon as companies moved from the Zimbabwean dollar exchange to the hard currency exchange.
After failing to get a Botswana Stock Exchange (BSE) listing approval by the Reserve Bank of Zimbabwe, Seed Co International became the first counter to list on the new bourse.
Companies like the crocodile skin manufacturer Padenga Holdings and the gold producer Bindura Nickel Corporation followed, before the likes of Simbisa joined the bandwagon.
Another key attraction of the VFEX in its early days was that listed exporters retained 100% of their incremental export earnings.
This meant that all companies listed on this exchange did not have to liquidate as much as other ordinary exporters, which was advantageous given the discounted official exchange rate at the time.
This made the VFEX an attractive destination for a number of exporters, including some already listed on the ZSE.
When companies like Innscor and National Foods left, the sustainability and future of the ZSE were called into question. To many, the VFEX appeared like a parasite, feeding off its metaphoric mother’s sustenance.
Even today, every equity listed on the VFEX, with the exception of West Prop, was once listed on the ZSE, and close to 70% of VFEX listings migrated from the ZSE.
However, the VFEX has successfully attracted new securities in the form of bonds and Depositary Receipts (DRs).
It also appears that the soul searching exercise for VFEX is coming to an end and it is finding its own identity. Recently, the Australian Stock Exchange (ASE)-listed Invictus Energy raised US$10 million from local investors and just concluded the listing of the Invictus ZDR taking the total number of listed securities to 16.
As if that it is not enough, it is now public information that at least two Real Estate Investment Trusts (REITs) i.e. the Pfuma and Eagle REITs are targeting a VFEX listing.
A REIT is a property owning vehicle that has special tax advantages and offers its unit holders exposure to the real estate market.
Already two REITs are listed on the ZSE and it seems it is now the VFEX’s chance to have their own on board. Kavango Resources Plc, a metals exploration company, also recently announced its intention to have a secondary listing on the VFEX.
The company reported that it aligns the exchange’s vision and wants to give the locals an opportunity to own Kavango. BridgeFort Capital, former MedTech, is also in a transaction thatcould potentially result in a VFEX listing.
The VFEX in collaboration with VCG Markets, recently launched regulated Contract for Difference (CFDs).
CFDs essentially give one exposure in the up and down movement of a particular security without necessarily owning the underlying asset. Although these instruments are not directly traded on the VFEX platform, the exchange is providing the control measures that are required to ensure a safe and secure platform.
Exchange Traded Funds (ETFs) is another product that is on the ZSE but not yet on the VFEX. Earlier in the year, the Old Mutual Top 10 ETF hinted that it would be delisting from the ZSE after most of the blue chip counters had migrated to the VFEX.
There is a fair chance that someone right now is planning on listing an ETF on the USD denominated exchange. I projected that by the end of 2024 the VFEX will be having at least 20 listings and its future can only continue to get better.
As the Mutapa Investment Fund privatises some of its assets, the prospects for VFEX continue to be interesting.
If it can attract some of them, it will get the major boost it needs. It will not be surprising if VFEX eventually grows and becomes bigger than the ZSE.
- Hozheri is an investment analyst with an interest in sharing opinions on capital markets performance, the economy and international trade, among other areas. He holds a B. Com in Finance and is progressing well with the CFA programme. — 0784 707 653 and Rufaro Hozheri is his username for all social media platforms.
