‘IDBZ bonds can help revive capital markets’

ZIMBABWE’S wholesale capital markets could be revived if the Infrastructure Development Bank of Zimbabwe (IDBZ)’s US$30 million Infrastructure Development Bonds floated this week become fully subscribed, a senior IDBZ official has said.

Report by Clive Mphambela

In an interview with businessdigest this week following the IDBZ floatation of the three-year bonds whose offer opened on October 25, IDBZ head of treasury Majaya Katoma said the bonds had received a lot of support from institutional investors during the canvassing stage.

“It’s only been three days since the issue opened and although I cannot divulge the figures, the support has been very strong so far,” Katoma said. “People are really for the bond, especially the 10% per annum coupon rate and the other attractive features of the bond.”

The bond issue, which closes on November 26, is being issued to raise funding for the retrofitting of a pre-paid metering system by the Zimbabwe Electricity Distribution and Transmission Company (ZEDTC).

The capital repayment will be made from a sinking fund that will repay investors in three equal installments over three years.

“This was a specific request from the many investors that we consulted in designing the term structure and features of the instrument. They wanted an instrument that was fairly liquid and would enable them to redeploy their capital invested early into alternative assets before the term of the bonds,” Katoma said.

He added that the other enhancements such as the tax-exempt coupons, the liquid and prescribed asset status made the bonds attractive to pension funds and insurance companies who are required to hold 25% of their assets in the form of prescribed assets. Traditionally, Government Guaranteed bonds and Treasury bills have been classified as prescribed assets.

“The bonds also have lender-of-last-resort status which has been granted by the Reserve Bank. Banks can effectively use these bonds as collateral at the Reserve Bank for accommodation in the event of liquidity challenges once the RBZ has been capacitated to lend,” he said.

“Given the recent successful issue of 91-day Treasury Bills by the Reserve Bank of Zimbabwe, the success of this bond may signal a possible return of activity on the domestic money and capital markets.”

The IDBZ bond issue comes at a time when global financial markets have renewed their interest in sovereign bonds of emerging economies in southern Africa which has seen countries such as Zambia tapping into the international capital markets to fund infrastructure needs.

Last month, the Zambian government raised US$750 million through the successful issuance of a 10-year Eurobond at a favourable 5,625 % yield.

According to media reports the bond issue attracted more than US$11 billion worth of orders from investment banks and the popularity of the offer by Africa’s largest copper producer reflects increasing investor appetite for debt instruments issued by emerging market countries.