Govt remodels the US$100 million bond

Finance and Economic Development and Investment Promotion Minister, Mthuli Ncube, says the Treasury is reworking on the proposed US$100 million government bond after initially encountering challenges linked to high insurance costs.

The government has over the years been working on modalities to issue a USD-denominated bond on the Victoria Falls Stock Exchange (VFEX) as part of the domestic mobilisation of funds for infrastructure and deficit financing.

VFEX is a subsidiary of the Zimbabwe Stock Exchange (ZSE), launched as part of efforts to attract global capital while also helping to restore foreign investor confidence in Zimbabwe’s capital markets and help companies raise capital in foreign currency.

In his 2022 National Budget, Mthuli said the bonds will be issued to reduce the cost of borrowing and deepen the capital markets, with a particular objective of developing the Victoria Falls Offshore Financial Services Centre aimed at attracting foreign capital.

However, briefing the media on the IMF/World Bank Spring meetings recently, Mthuli said the process was largely slowed down by the cost of providing insurance.

“What we wanted was to buy some insurance globally in order to raise the credit standing of the bond, but then it turned out that the insurance was so high as the extra yield we had to pay as a government without insurance.

“Because without insurance, we have had to pay for the extra yield, which was almost as high as the insurance, and it was expensive.

“So we have to prove that. Let us re-examine this so that we do not end up paying too much as insurance on the bond.

“Therefore, we have started reworking on it, and we will come back to the market on progress on the bond offering,” he said.

According to the Minister, the bonds will be issued to complement government resources needed for the rehabilitation of roads, upgrading and equipping public healthcare facilities, as well as investments in irrigation infrastructure.

It is believed that Zimbabwe requires US$2 billion annually to finance its economic infrastructure.

In support of the bond market initiatives, the Victoria Falls Stock Exchange (VFEX) says they are set to be submitted to the Bond Market Association before year-end, which is aimed at enhancing the country’s fixed income market.

A bond market is often referred to as the debt market, fixed-income market, or credit market. Governments usually issue bonds to raise capital to pay debts or fund infrastructural improvements, while publicly traded companies issue bonds to finance business expansion projects or maintain ongoing operations.

VFEX, in its latest newsletter, said the initiative has gathered momentum and has received support from key stakeholders.

“The Bond Market Association initiative has gathered momentum, and it is expected that the inaugural launch will be held before the end of the year.

“The initiative has received support from key stakeholders, and we are hopeful that it will enhance the outlook of the fixed income space,” VFEX said.

Economists believe the country’s financial ecosystem is shallow, with the fixed income market as good as dead due to sub-inflation returns.

The Insurance and Pensions Commission (Ipec) recently said the development of the bond market will increase sources of funding for key projects that require long-term funding.

Ipec said the development of the bond market is key, as no country can develop without it and these can be Government bonds and parastatal bonds.

First Mutual Holdings (FMHL) chief executive, Doug Hoto, said the pensions industry is deliberately avoiding monetary investments, but should the Government issue a USD bond, the industry will not hesitate to invest.

“If Zimbabwe issues a USD bond today, we will buy it or even run out of stock as the industry seeks to protect its members,” he said.

Hoto said pension funds, through the required 15 percent offshore investments, are invested in the deposit receipts of the AfreximBank and the TDB depository receipts of the PTA Bank as a way of protecting policyholders and managing country risk.
-ebusinessweekly