IDBZ bond undersubscribed

HARARE - Infrastructure Development Bank of Zimbabwe (IDBZ)’s $30 million infrastructure development bond has been undersubscribed by $17 million.

The funds are earmarked for the retrofitting of electricity prepaid meters.

The three-year bond, with a 10 percent fixed rate, had a total subscription performance rate of 59,41 percent.

It had a principal repayment period of three instalments at the end of each year.

Only 53 applicants worth $17 824 000 were received for the bond.

The bond issue was in line with the IDBZ’s core statutory mandate of mobilising long-term capital from both domestic and external sectors to support infrastructure projects.

However, the prevailing liquidity challenges coupled with the lack of appetite for the IDBZ bond by financial institutions, has raised questions on the county’s readiness for the bond market.

“The market is ready because we need sources of finance which are long term,” said Best Chideme, an investment analyst with MMC Capital Research.

“However, liquidity is the issue. With an economy like ours it will be difficult for the bonds to be fully subscribed.

“The money is just not there,” said Chideme.

Luxon Kalonga, a financial analyst, believes IDBZ’s bond was arguably the best chance for pension funds and insurance companies to comply with the statutory requirement that they should have at least 25 percent of their investments in prescribed assets.

“For bonds I would say we are (the market) semi-ready. A huge proportion of deposits is short-term in nature.

“In order to have an active bond market we need deposits that are long-term in nature,” said Kalonga.
“Currently, long-term deposits account for only 10 percent of all deposits. However, bonds can be structured in a more flexible way like the IDBZ bond where principal is repaid every year.”

Mobilisation of development capital through issuance of bonds is not peculiar to Zimbabwe.

In India, for instance, institutions such as the Infrastructure Development Finance Company, Life Insurance Corporation and the State Bank of India directly issue infrastructure finance bonds as a way of mobilising funds from the investing public.

In Kenya, the issuance of infrastructure finance bonds as a source of funding remains the preserve of government, which is an active player in the local capital markets.

Historically, bonds have played a significant role in financing Zimbabwe’s infrastructure projects.

The construction of the Kariba Power Station in 1950’s was financed through the issuance of bonds, the Kariba Bonds.

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