Foreign investors threaten ZSE pullout

The inability by foreign investors to repatriate capital and disinvestment proceeds from the country is hampering the performance of the Zimbabwe Stock Exchange, amid reports custodians are threatening to block foreigners from investing into the country's capital markets.

This comes as the payments backlog has grown substantially from the US$126m reported as at February this year while it is also difficult to repatriate proceeds made after the February 20 Monetary Policy Statement, in spite of the Reserve Bank of Zimbabwe's priority addition on portfolio funds.

Investments on the stock market come through custodians, which include Stanbic Bank, Standard Chartered Bank, CABS and ZB Bank although the bulk of the funds are locked at Stanbic and Standard Chartered.

According to an operational update from Chengetedzai Depository Company for March, foreign investors made up 26.27% of market value of securities in that month, making them the largest investor type on the ZSE. They are followed by Corporates at 23.33% and Insurance at 22.66%. Foreign investors  accounted for 31% of turnover in 2018, according to official figures. At their peak in 2015, foreign investors accounted for 56%.

Ever since the worsening of the forex crisis, foreign investors had taken the route of switching portfolios as a way of preserving value while some had opted to use fungible stocks to move their funds out of the country.

But now, ZSE chief executive Justin Bgoni says that the bourse has engaged government as overseas custodians pile on pressure. "It's a very unfortunate situation. We have so far received communication from custodians from overseas who are discouraging people from investing in Zimbabwe until the issue is resolved," he said.

"At the moment, the indications are that no one is actually taking their money outside. I have heard of a figure within the range of US$200m-US$500m if we are to combine capital and dividends."

Bgoni said the ZSE has spoken to the Finance and Economic Development Permanent Secretary George Guvamatanga on the matter and it was the bourse's "humble submission that we should not rely solely on interbank to solve this crisis but there are other options".

Stockbroker Itai Chirume said the challenges on dividends and capital repatriation needed to be addressed with urgency.

"It is a fact that foreign investors are finding the going tough in repatriating their funds especially when they are supposed to sell their stocks in RTGS and get their foreign currency on the interbank platform. With the prevailing rates on the interbank, it has been difficult to access foreign currency," Chirume said.

For investors who invested in Zimbabwe since October 2016, their US dollars were being converted at 1:1 with the local bond note. Now, they have to convert RTGS dollars, at a market driven rate currently at US$1:ZWLS$3.26.

According to the central bank's directive to banks, proceeds from the sale of shares done before 20 February, can now be processed through the interbank market, the official market for foreign currency
trading.

According to the directive, those that seek to repatriate the full value of their investments, were ordered to first register such balances with their administering Authorized Dealers as part of the legacy debt and foreign liabilities, after which they will expunge
their debts through the interbank market.

Authorised Dealers were also advised that new portfolio investment inflows received after February 20, 2019 should be liquidated at the prevailing market exchange rate to enable the purchase of the shares in RTGS dollars.

According to the directive, thereafter, proceeds from sale of such shares will be sourced from the interbank market at the prevailing exchange rate. Due to the prevailing interbank rate compared to the parallel market, accessing foreign currency has been a tall order for
foreign investors.

Due to the potential exchange losses, the RBZ has since directed custodial banks to first obtain the mandate from their clients to participate on the interbank foreign exchange market at prevailing rates which are no longer at par with when they invested.

Before the introduction of the interbank, local companies with foreign shareholders have been struggling to remit the dividends. Early this year, Delta Corporation said its anchor shareholder, AB InBev, would place over US$120m in unremitted dividends and fees in RBZ savings bond to reduce pressure on the demand for foreign currency.

In 2017, RBZ announced a US$5m portfolio investment fund to speed up the repatriation of portfolio related funds to foreign investors who have invested on ZSE.

The fund failed to take off as RBZ did not deploy the US$5m seed capital, resulting in the backlog for portfolio investors running as far back as two years.