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Zimbabwe: CFX Plans Cash Injection Into Property Expansion
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Financial Gazette (Harare)
16 May 2008
Posted to the web 16 May 2008
Harare
CFX Financial Services is planning to spend $58 trillion in rolling out new branches for its retail bank as Zimbabweans witness a growing trend of bank holding companies diversifying their income streams to include investments in property.
In a circular to shareholders, CFX this week said it would use part of the $679 trillion to be raised through a rights offer to expand its branch network.
The group could not disclose the areas targeted for expansion.
The offer, which will among other things raise funds for IT software and hardware, motor vehicles, and working capital, opened on Monday and closes on Friday next week.
POSB, which owns 18,2 percent of the group, is underwriting the rights offer.
CFX owns a number of property investments held through CFX Properties.
In the 12-months to December 2007, the CFX Properties posted a net profit of $4,1 trillion in historic terms and $3,1 trillion in inflation adjusted terms mainly due to the fair value adjustment of the property portfolio.
A number of bank holding companies in Zimbabwe now operate property investment vehicles to secure earnings against inflation, which topped $165,000 percent in February.
CBZ Properties, a subsidiary of Zimbabwe Stock Exchange (ZSE)-listed CBZ Holdings Limited, notched a profit of $37,597 billion in its first year of operation, while its balance sheet size grew to $50,806 billion.
The ZSE has also seen investors shifting their portfolios into brick and mortar investments.
Four property companies have so far emerged on the local bourse namely Pearl Properties, ZimRe Property Investments, Dawn Properties and Mashonaland Holdings.
In one of its weekly commentaries, Kingdom Stockbrokers (KSB) noted that about 30 percent to 50 percent of profits of the majority of companies in Zimbabwe were now due to the revaluation of assets, mainly property.
The first quarter of the year has seen companies getting into the market to buy residential properties, according to KSB.
The residential property market has been quite active as compared to other types of properties like commercial and industrial.
"The latter two are not fast movers because of their specialty in construction and the prices involved. Surpassing the residential property market has been the undeveloped land (vacant stands) market.
"This market has been highly active because it is relatively affordable as compared to the other property types and people and developers are buying undeveloped land, not with the intention of developing it, but to hold in the hope that value of land will appreciate significantly.
"The scramble for stands has also been exacerbated by low levels of property developments with particular reference to servicing of stands by local authorities and private developers. The reason for the positive performance of property is that property is one of the only asset classes that have kept its value in real terms. Put simply 'brick and mortar' has managed to provide a hedge against inflation.
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"Given the current economic conditions, investors tend to lose faith in financial assets when inflation runs out of control and prefer to hold real assets," said KSB.
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