RBZ directs banks to utilise 15% of forex on foreign portfolio investments

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The Reserve Bank of Zimbabwe has prioritised payments of disinvestment proceeds from portfolio investors and has moved to process the proceeds from the sale of shares done before the Monetary Policy Statement.

According to Circular 2 of 2019 from the central bank, the payment of disinvestment proceeds has been placed under category two on the allocation list where there is an allocation of 15%. The productive sector will take up 70% under category one while category three, made up of Other, will now take up 15% from 30% earlier.

This follows deliberations agreed to during a meeting of investment analysts and the central bank. Confusion and almost turmoil had hit the local stock market after custodians had failed to settle trades from foreign investors from Friday February 22, saying that they were now ringfenced in an interpretation of the MPS from the governor.

As previously reported, one of the custodians had interpreted the message to mean that foreign investors balances of funds as at the date of the MPS had been ringfenced and therefore unavailable for payments. This had seen investors holding back and exercising caution on investing on the Zimbabwe Stock Exchange.

Ideally, portfolio investors who invest in good faith should get their proceeds and therefore there was need for a pathway of remitting these funds. The backlog on disinvestment proceeds currently stands at $126 million. 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.

A letter from the Association of Global Custodians suggested that instead of categorising capital and profits due to foreign investors as a method of prioritising payments, the country should use the first in first out method to remit proceeds. Foreign investors by and large do not mind going through the interbank market but only require that remittances be made timeously. “For quite a while foreign investors have been aware since 2016 that their balances were not US$. This is the reason why most were using Old Mutual to exit the market,” according to a contribution from one of the analysts.

In response the RBZ in the circular said that those who seek to repatriate the full value of their investments, would first register such balances with their administering dealers as part of legacy debt and foreign liabilities, after which they will expunge their debts on a First In-First Out basis through the interbank market. Furthermore and in line with the MPS, portfolio investors are free to reinvest

New portfolio investment inflows received after February 20, 2019 should be liquidated at the prevailing market exchange rate to enable the purchase of shares on the ZSE in RTGS dollars. Thereafter proceeds from the sale of such shares will be sourced from the interbank market at the prevailing exchange rate.

According to the circular, proceeds from the sale of shares done before February 20, 2019, can now be processed through the interbank market. “Custodial banks should however obtain the mandate from their clients to participate on the interbank forex market at the prevailing rates.” However, the RBZ said that each of the custodians must satisfy itself that the initial funds that were invested on the ZSE emanated from offshore and the relevant copies of the TTs should be availed to the custodial bank before participating on the interbank market. – FinX