Zim rolls out massive Kanyemba Project

Construction firm, Exodus & Company, is set to issue a US$42 million infrastructure bond for part funding of the Harare-Kanyemba Road project, Business Weekly can reveal.

The Harare-Kanyemba Project (HEKA project) is an infrastructure development undertaking between the Government and a private consortium of local infrastructure construction firms Exodus & Company and Ncube-Burrow Consulting Engineers.

The road project mainly focuses on upgrading, widening and construction of 354km of travel infrastructure that will facilitate efficient movement of factors of production and tourists between Eastern-Central Africa and Southern Africa through Zambia, Mozambique, and Zimbabwe.

In total, the HEKA project will cost US$360,5 million which will be financed through a global loan facility through six, US$60 million revolving facility tranches.

According to the infrastructure bond term sheet seen by Business Weekly, the government will unlock the facility with a 30 percent contribution (US$18 million), which will result in a total contribution from the Government of US$108 million leaving a balance of US$252 million to be raised via loans.

“The loan facility route was deemed the ideal structure following comprehensive analyses of alternative options which showed as unfit tolling structures for the project,” reads the term sheet in part.

Funding the HEKA project through loan financing marks a departure from the last few years when such projects were funded from the national Budget.

Economist, Professor Gift Mugano, has long recommended Government to consider innovative funding models for long-term infrastructure such as public private partnerships, diaspora bonds and use of pensions funds.

“This will reduce the burden on Government while at the same time reducing current abuses of Government funds, which is fuelling the parallel market rate,” Mugano argued.

Trigrams analyst, Walter Mandeya said: “The infrastructure bond, represents a step in the right direction in which infrastructure development is funded through savings in the economy using private funds attracted by the project’s credentials and repaid at a steady pace using government revenues and hopefully earnings (or savings) derived from the developed project. In other words, without resorting to the proverbial “printing press”.

“This approach ensures that funds held through liquidity aggregators, such as pension and other insurance funds, investment funds such as Unit Trusts, REITS & ETFs, together with domestic household savings can earn a fair return, without becoming inflationary.”

Mandeya said another benefit of this approach is that projects are supported by the markets based on their viability, weeding out projects with questionable economics, thus putting some form of guide rails as to what government should focus on to accelerate development, without being wasteful with scarce national resources.

According to Exodus & Company, the first US$18 million deposit from the Government has been received which has kick-started works on the Harare-Kanyemba Road.

Of the US$42 million infrastructure bond, US$26,9 million will be used for roadworks, US$8 million for bridges, while US$6,6 million will be used for a border post.

Subscription for the bond has already started

Road works will, however, require US$330,4 million in total, while the border post will require US$13,8 million. Funding will also be required for toll plazas worth US$4,4 million while environmental and social measures will require US$3,8 million.

The bond has a two-year tenor and shall have a coupon rate of 10 percent per annum calculated on a 360-day basis. The coupon on the bond will be paid quarterly in arrears.

The estimated project time is five years.

Mandeya said the specific terms of the bond are very attractive in that the bond can be subscribed

in both ZWL and USD with convertibility of the ZWL to USD, has a 10 percent coupon on the USD paid quarterly and has a two -year tenure.

“This represents government’s desire to indicate their shift in approach by testing the waters and allowing the markets to judge them with a short-term bond. As both the markets and government become more comfortable with this new way of doing infrastructure, we anticipate seeing longer – term bonds being issued.”

For the bond, the Government is the ultimate borrower and has the ultimate obligation to settle this bond.

While the bond is for US$42 million, it can be subscribed for in the local currency allowing bondholders the “opportunity to convert these balances to a USD asset that will earn interest in US Dollars.

Investors in the bond “will also have an opportunity to have the principal to be repaid in US Dollars as well which will ensure value preservation of their investment and will offer a hedge against exchange rate movements of the ZWL against the US dollar,” reads part of the Bond Issue Information Memorandum seen by Business Weekly.

When completed, the HEKA project is expected to facilitate the efficient movement of factors of production between Eastern-Central Africa and Southern Africa through Zambia, Mozambique and Zimbabwe.

The project has both construction and financing aspects assigned to the construction parties to the transaction.

Through its identified financing partners, Exodus & Company will be the lead arranger in debt financing solutions for the HEKA project.

Exodus & Company, which is one of the contractors on the Harare-Beitbridge (HEBE) road construction project, will also be the lead contractor on the HEKA project but intends to subcontract construction works to selected contractors.

The HEKA Road project, which has national project status, has the potential to provide multiple benefits to economic and social sectors, among them regional integration as part of a development corridor, improve accessibility, as well as private sector participation in infrastructure provision.

The HEKA Road will greatly enhance economic benefits for the area from Harare-Mvurwi Guruve- Kanyemba road, according to Exodus & Company.

“The construction of the project road will provide an alternative route to Zambia through Kanyemba and onwards to Malawi and will assist in relieving traffic along the Harare – Chirundu route as some trade traffic will divert to the Harare-Kanyemba route.

“Business to be generated through this road project include dry port at Kanyemba Border, restaurants, brick moulding, mining, agriculture, service stations, shopping centres, health facilities, truck-inn parking lots, timber milling and processing, safari hunting and game drives, domestic tourism, fishing, hotels and lodges, boat cruises, and massive housing and commercial opportunities at Kanyemba Border Town.”

The National Project Status means participants in the project will have benefits such as exemption of the 20 percent compulsory liquidation on foreign currency on the 30 percent loan deposit by the government, drawdowns, principal repayments, interest payments and arrangement fees for this facility, and payments made to specific service providers that are part of the project.

They will also enjoy an exemption of duty payment on the importation of capital equipment, machinery, equipment and consumables to be used in the project.

There will also be a waiver on income tax on profits made by the contractor during the construction period.

Interest in Kanyemba

There has been a stampede that has been playing out almost quietly in Kanyemba, the north-most tip of Zimbabwe, where prospective land owners are reportedly stepping on each other’s toes in a mad-rush to own strategic land pieces ahead of an expected economic boom.

Access into or out of Kanyemba, recently declared a town, was by air charter, 4x4s or other sturdy vehicle along a long, rough and dusty road into a paradise teeming with tiny, small, rare, large and dangerous flora and fauna.

An enigma about Kanyemba has also been reports of existence of significant tonnes of precious uranium, a treasure trove long talked, but nothing has been done thus far to exploit it.

Recently Mbire RDC chief executive Claudius Nyahuma Majaya, told Business Weekly that a lot has happened following the investment conferences they held as well as exhibitions, trade fairs and agricultural shows they have participated in over the years.

“We have managed to attract a quite a lot of investors and a lot of interest especially from Government and other sectors of the state,” Majaya told Business Weekly.

What’s the catch?

Mbire and Kanyemba in particular, are poised to see significant traffic of humans from various corners of the world once plans to build a Y-link bridge that will facilitate passage between Zimbabwe, Zambia and Mozambique across the Zambezi River.

Apart from the boundless adventures potential from fishing on Zambezi River and safari activities due to the array of game, Kanyemba will attract more traffic once the bridge across Zambezi is built as it will cut the distance from Zimbabwe into Central Africa by 600 kilometres.

“We are not sure yet as of time (completion of bridge), but what has happened up to date is to try and create a platform which may not necessarily be a bridge but just to enhance trade between Zambia and Zimbabwe for the first time and then move on to Mozambique,” Majaya said.

“Like indicated before, using the Harare Kanyemba route is shorter than using the current convectional Harare-Chirundu Road; (because) you will reduce your distance into Central Africa by about 600km.-ebusinessweekly