Zimbabwe: Modalities for Vfex Set Up

5 August 2020

Senior Business Reporter

THE Government has set some key modalities for the foreign currency-denominated bourse, the Victoria Falls Stock Exchange (VFEX).

The establishment of the VFEX is part of Government's broader plan to turn the resort town into an offshore financial centre (OFC).

The VFEX will become Zimbabwe's second stock market after the Zimbabwe Stock Exchange (ZSE).

According to the newly promulgated Statutory Instrument 196 of 2020 (Exchange Control -- Special Provisions for Securities Listed on the Victoria Falls Stock Exchange -- Regulations, companies listed on the Zimbabwe Stock Exchange may only list up to 20 percent of their total capital on the US dollar bourse if its capital is raised offshore or from free funds.

"A company that is a Zimbabwean resident and listed on the Zimbabwe Stock Exchange; may list on the Victoria Falls Stock Exchange not more than 20 percent of its capital at any time on the Zimbabwe Stock Exchange: provided that any capital raised by such company on the Victoria Falls Exchange shall be from an offshore source or free funds," reads part of the SI.

Although the SI says securities listed on the VFEX shall be tradable and settled solely in United States dollars or a convertible currency, it does not specify what a 'convertible currency' is.

According to the new regulations, a company whose residence does not lie in Zimbabwe may list on the VFEX in line with the broader goal of the US dollar-denominated bourse to attract new foreign capital.

The main conditions to be met in this respect are that "(i) any capital raised by such company on the Victoria Falls Stock Exchange is from an offshore source or from free funds; (ii) a non-resident company that had de-listed from the ZSE in the five years preceding its listing on the VFEX shall reinvest or employ in Zimbabwe 20 percent of the capital raised on the VFEX no later than five years from the date that it was raised."

And a company whose residence lies in Zimbabwe and additionally is not currently listed on the ZSE may apply for listing on the VFEX, after meeting the conditions that "(i) any capital raised by such company on the Exchange shall be from an offshore source or from free funds; (ii) at least 20 percent of such capital shall be re-invested or employed in Zimbabwe no later than five years from the date that it was raised.

In terms of the new regulations, a company shall list on the VFEX in accordance with Listing Rules approved by the Securities and Exchange Commission, and any capital which is raised by a company listed on the VFEX may be held in an approved local or offshore account with an internationally recognised banking institution.

The Government, through SI 196 has also determined that the clearing and settlement of transactions executed on the VFEX shall be done by the said exchange locally or offshore in accordance with clearing and settlement rules approved by the Securities and Exchange Commission, in consultation with the Reserve Bank of Zimbabwe).

Earlier this year, Finance and Economic Development Minister Mthuli Ncube said the designation of Victoria Falls as an international finance centre (IFC) will provide additional opportunities to hedge foreign currency denominated products.

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