HomeBusinessZim’s risk profile dampens interest in bonds

Zim’s risk profile dampens interest in bonds

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LOCAL companies and parastatals could benefit from the introduction of a bond market, but Zimbabwe’s high indebtedness and poor business climate could prove stumbling blocks, analysts have said.

The Zimbabwe Stock Exchange late last year announced plans to introduce a bond market during the course of the year, which would provide a platform for long-term funding to both public and private sectors. It set up a committee to spearhead the process in the last quarter of 2013.

This presents a welcome opportunity for local companies who have become increasingly uncompetitive, saddled with ageing plant and equipment on the back of limited and often expensive long-term funding.

Not only would they access cheaper finance, but the long-term nature of the bond market would present opportunities to restructure their balance sheets.

But analysts say while the introduction of bonds could provide a ray of light for several companies trapped in debt, the reputation of the issuer is critical as a way of instilling confidence in potential investors.

“Zimbabwe on this area has failed to win back the hearts of most foreign investors, mainly due to lack of (respect for) property rights and inconsistent government policies,” asset management company, Tetrad, said.

Zimbabwe’s largest financial services group, CBZ Holdings last week announced plans to issue a $200 million bond in April, more than double the $80 million it raised last year, to boost its underwriting capacity. But these bonds are targeted at foreign markets and are meant to help soften the illiquid local market.

Debt-ridden Air Zimbabwe also intends to raise $50 million through the issue of a local aero bond in order to fund its working capital and to pay off its debt. Tetrad points out that Zimbabwe is regarded as a risky mining destination despite commanding huge mineral resources.

This means long-term capital comes at a premium, and analysts cite the market scepticism that marred the central bank’s efforts to raise $30 million through Treasury Bills in October 2012 as a sign of things to come.

Market interest in the paper was tepid, despite government pressure for banks to take up the debt.

Itai Chirume of MMC Capital says corporate bonds are likely to be more successful if the government gave them prescribed assets status.

“Corporate bonds would stand a slightly better chance than treasury bills and quasi-government bonds because repayment is tied to the fortunes of the issuer or borrower. A precondition to a flourishing bond market would be the resolution of our external debt,” Chirume said.

He said granting the bonds prescribed asset status could render them a more attractive investment for insurance companies, pension funds, and other relevant institutions.

But Lynton-Edwards Stockbrokers research analyst, Kudzi Sharara said while private companies may find it relatively easier to access funds from the international capital markets, most of them currently had outdated business models that would reduce their chances of success.

“Most companies are still using antiquated machinery and equipment that is ultimately making them uncompetitive. Such companies, most of which are struggling, may find it difficult to source long term capital,” he said.

A Confederation of Zimbabwe Industries report showed that a quarter of respondents that participated in a year-end poll cited access to funding as the biggest impediment to doing business, with most companies using internally generated funds for capital expenditure.

— The Source

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