Unlocking capital through Fixed Income Securities

The potential of well-functioning Fixed Income Securities in Zimbabwe’s capital market to attract long term capital is vast and a determinative factor in broadening the avenues for companies to access capital. The opportunity of the Zimbabwe capital market resides in this movement of capital which is very responsive to the attraction of transparent, deep and broader Fixed Income securities.

A fixed income security is a loan made by an investor to a government or a corporate borrower. The borrower, or issuer promises to pay a set amount of interest, called the coupon on a predetermined basis. The issuer returns the principal amount, also called the face or par value, to the investor on the maturity date. Fixed income securities can be classified according to their tenure from short term instruments, medium term securities through to long term products.

The FINSEC Fixed Income Board is available for the listing of bonds and alternatives without limitation. Admissable instruments range from Debentures, Medium Term Notes through to municipal and corporate bonds as well as government paper.

The FINSEC ATP allows for the listing of debentures. Debentures can fall under the short term instruments. These are debt securities used to raise capital from the public and are backed by the integrity and the credit worthiness of the issuer. They offer more flexibility for issuers than a term loan as there is more variety with respect to the maturity, security, interest rate and repayment. Debentures are the promissory notes issued to the debenture holders, often called as creditors of the firm, for a fixed period of time and at a fixed rate of interest.

FINSEC also enables the listing of Medium-Term-Notes (MTN). By knowing that a note is medium term, investors have an idea of what its maturity will be when they compare its price to that of other fixed-income securities. All else being equal, the coupon rate on an MTN will be higher than those achieved on short-term notes. For corporate MTNs, this type of debt program is used by a company so it can have constant cash flows coming in from its debt issuance; it allows a company to tailor its debt issuance to meet its financing needs..

Long term instruments investors seek a steady stream of income payments and, compared to stock investors, may be more risk-averse and more focused on preserving, rather than increasing wealth. Given the tax benefits, the interest rate for long term fixed income securities is usually lower than on taxable fixed-income securities such as corporate bonds. Municipal bonds, treasury bills and corporate bonds fall under this category.

Municipalities can list Municipal bonds on the FINSEC ATP. Municipal bonds are debt securities issued by municipalities and other local government authorities to fund day-to-day obligations and to finance capital projects such as building schools, health facilities or water reticulation systems. By purchasing municipal bonds, investors are in effect lending money to the bond issuer in exchange for a promise of regular interest payments, usually semi-annually, and the return of the original investment, or “principal.” A municipal bond’s maturity date (the date when municipality repays the principal) may be years in the future. Short-term bonds mature in one to three years, while long-term bonds won’t mature for more than a decade.

Private corporations, public institutions and state enterprises are eligible to bring fixed income securities onto the FINSEC ATP. The minimum capitalisation of the listing is the equivalent of US$ 1 million or any lower figure as the FINSEC Listings Committee may approve on a case by case basis. An Issuer that wishes to list its securities on the FINSEC Fixed Income Board will be required to appoint a Financial Advisor licensed by SECZ who will assist the Applicant in preparing the submissions inclusive of the Offer Document, financial statements and the pricing settlements

The Financial Securities Exchange (FINSEC) is a Zimbabwe registered securities exchange and a member of the Escrow Group. The Escrow Group has interests in the financial services and technology sectors. Corpserve Registrars and Escrow Systems are the other members of the group.

For more information contact:

2nd Floor ZB centre, Cnr Kwame Nkrumah and 1st Street

Harare, Zimbabwe

Tel: +263 242 758193

Email: info@finsec .co.zw

www.finsec.co.zw

Twitter: @FINSECZim