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ZSE exodus envisaged as firms seek refuge



THE devaluation of Zimbabwe Stock Exchange (ZSE) stocks in United States dollar terms could trigger an exodus of listed firms from the bourse to alternative markets such as the Victoria Falls Exchange (VFEX) as they seek capital preservation, a new report has shown.


Experts say the re-introduction of the multi-currency system and the current tight liquidity situation have seen most companies reporting significant growth in US dollar revenues.

According to the latest Imara Asset Management quarterly report published this month, rising inflation and currency dynamics troubling listed firms could push for the dollarisation of the ZSE.

“The one headache for both listed and privately owned companies is the hassle of producing annual accounts in ZWL under inflation accounting. This is apparent for listed companies who continually request extensions from the ZSE as their accounts are not ready to publish,” the report reads.

“This is not necessarily due to our local accounting firms not being able to produce them but, for the international accounting groups, the accounts need to be signed off by the technical departments in South Africa who have little experience of inflation accounting. As a result we expect to see more companies changing their functional currency to the USD now that the bulk of their revenues are in USD. We might also see more companies move from the ZSE to the VFEX for similar reasons. We have been delighted as shareholders in Delta, OK and Simbisa to receive our dividends in USD as well.”

Desperate to defend the value of the domestic currency, Zimbabwean authorities have hiked interest rates to discourage borrowings for parallel market transactions,  among several measures to stabilise the economy.

“The banks too are fast dollarising. With their ZWL borrowers paying off their ZWL loans, new loans are being granted in USD. Typically banks would have only extended loans to exporters who receive genuine USD but they are more willing to do so now with revenues being deposited in physical cash,” the report reads.

“Companies on the other hand are also willing borrowers as this helps them circumvent the 20% liquidation rule on their nostro receipts. It would be dangerous to lend against nostro USD; remember the days of the RTGS electronic USD that were backed by nothing but a promise that in the end was never kept. The last remaining players to use primarily the ZWL are the local pension funds, the asset managers, stockbrokers, administrators and of course their regulators, IPEC, SECZ and the ZSE all of whom receive the bulk, if not all, of their fees and revenues in ZWL. Their staff salaries therefore have to be paid in ZWL whilst they are unable to pay other costs in USD. It would therefore make sense for the ZSE to dollarise in line with the listed companies who are fast doing the same!”

Official figures show that the ZSE industrial index peaked at 93 000 at the end of April, had fallen to 65 000 by the end of June and hit a low of 41 000 in mid-September.

The initial falls, Imara says, were caused by the government’s attempt to hit share prices in the false belief that it was the ZSE that was one of the causes of the depreciating currency.

“In US dollar terms the falls were even more marked. As we had written in previous Notes, valuations of listed equities in USD terms were fairly valued during 2021 and early 2022. By mid-September valuations stood at their lowest levels since September 2008 at the height of hyperinflation when businesses were on care and maintenance!,” Imara says

“Take Delta whose market valuation fell to a mere USD230 million at the recent low. Back in 2008 at a time when the company could barely produce with the market flooded by cheap imports, it was valued at USD360m. Yet in 2022, the company is operating at full capacity and due to expand in early 2023 to meet demand. Meanwhile the bulk of its revenues are in USD. Under normal circumstances its value should be nearer USD1.5 billion.

“At the same time, Econet plus Ecocash taken together were worth a mere USD300m at their September lows yet in 2008 when it was nearly impossible to buy a SIM card and there were less than 1 million subscribers it was worth USD332million. Back in March this year the two were valued together at almost USD2 billion! Such low valuations rarely occur and when they do it is time to buy aggressively. Such opportunities don’t occur very often anywhere in the world.”

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