Why First Capital wants VFEX listing

BUSINESS REPORTER

First Capital Bank says its listing on the Victoria Falls Stock Exchange (VFEX) will give the bank access to US$ facilities for lending to corporates.

Shareholders of the bank are meeting on May 4 for an extraordinary general meeting to approve the migration of the company to the VFEX from the Zimbabwe Stock Exchange.

The bank provides corporate services and funding to companies in Zimbabwe that are exposed to US$ denominated costs, it said in a notice to shareholders on the EGM.

“Improved access to USD facilities for the Bank through the VFEX enables the Bank to maintain a competitive position in the market by offering USD capital to such corporates,” it said.

The proposed migration to the dollar-denominated bourse comes as the bank has seen a growth in its US$ loan book and balances to over 70%, with foreign currency income contributions between 55% and 65% in recent months.

First Capital Bank said it has mobilised lines of credit from regional and international partners that include the African Development Bank, Afreximbank, the European Investment Bank and the Trade and Development Bank.

These facilities are expected to provide a boost to the economy through trade finance and medium-term capital opportunities, which smoothen trade cycles and facilitate capital investment for long-term projects, it said.

“Access to foreign currency capital through the VFEX can attract more facilities of this nature and provide sustainability to the existing relationships,” the bank said.

First Capital Bank said it plans to roll out more foreign currency denominated products to boost its foreign currency revenue hence the proposed migration to the VFEX.

“The potential increase in the Bank’s US$ earnings increases the shareholders’ expectation to receive their return in US$ through US$ dividends and US$ capital gains on share disposal, which the VFEX offers in comparison to the ZSE,” it said.

The bank said it was migrating to the US$-only bourse to avoid the complexity arising from the current reporting framework which is based on the ZWL in which adjustments have to be made for hyperinflation.

“By listing on VFEX, the bank is required to report its financial performance in US$, which is a stable currency that will assist current, and potential investors to better understand the performance of the entity,” First Capital Bank said.

The bank said the US$ implied valuation of First Capital Bank following its VFEX listing mitigates valuation volatility and provides a more accurate reflection of the bank’s market capitalisation.

This will result in shareholders realising the true value of their holdings on disposal, it said.

The bank said the VFEX offers lower foreign exchange risk arising from local currency depreciation, tax incentives and lower trading costs of 2.12% compared to 4.63% on the Zimbabwe Stock Exchange for shareholders and potential investors.