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Investors shun long-dated financial instruments




Thomas Zondo Sakala

THE Infrastructure Development Bank of Zimbabwe (IDBZ) has noted that the fragile macroeconomic environment has continued to negatively impact the Bank’s resource mobilisation efforts as institutional investors are shunning long-dated financial instruments.

IDBZ is a Government-owned development bank in Zimbabwe, mandated to fund long and medium-term funding for key infrastructure projects, including in the areas of transportation, housing, energy, ICT, water and sanitation.

Chief executive Thomas Zondo Sakala , in the bank’s 2021 financials said that in the face of high inflation, institutional investors are shunning long-dated financial instruments and have since tilted their capital allocations in favour of the real estate and listed equities as they pursue value preservation strategies.

“This has made it difficult for the Bank to mobilise long-term capital which is suitable for infrastructure investments,” he said.

He said the Bank has had to innovate by offering value-preserving instruments such as its USD Linked Bonds.

However, the domestic market experienced liquidity constraints for the greater part of 2021 which also negatively impacted resource mobilisation activities.

“The country has a dearth of bankable projects, and this has been a major impediment to project financing activities. The Bank is addressing this challenge by prioritising the allocation of constrained PPDF resources for improved throughput of bankable projects.

“The Bank deploys various funding mechanisms including Public Private Partnerships (PPP) arrangements to crowd-in private sector investors into commercially viable projects,” said Sakala.

He said the Bank’s USD-Linked Bonds under its Vaka/Yakha Zimbabwe Infrastructure Bond Programme which was launched in 2020 continue to receive support from the market, allowing the Bank to raise critical implementation financing for the Sumben Phase 1 Housing Project.

He added that more issuances will be made to support projects that demonstrate adequate revenues for debt servicing.

“The Bank will structure similar indexed instruments as it seeks to respond to value preservation objectives of investors,” noted the chief executive.

Sakala said by replicating the BSAC financing model, the Bank will continue to make use of mezzanine/quasi-equity instruments with participatory rights, such as the Participating Preference Shares.

He indicated that the Bank also seeks to utilise Engineering, Procurement, Construction plus Financing (EPC+F) arrangements initially targeting University Students and Staff Accommodation Programme (USSAP) and other housing projects.

Sakala said the Bank’s ongoing capitalisation initiatives are guided by a roadmap which has received support from the Bank’s shareholders and various key stakeholders.

“The Recapitalisation Programme will be implemented in phases through a series of transactions to be undertaken over the next 5 years in pursuit of the objective of reaching a capitalisation level of US$500 million in the medium term and US$1 billion by 2030,” he said.

He noted that the first phase of the Recapitalisation Programme involved a Rights Issue for $1,75 billion which was undertaken by the Bank in the last quarter of 2021.

A total of $719,8 million was received from shareholders in 2021 pursuant to the Rights Issue, being $500 million from the government and $219,8 million from the RBZ.

“Treasury has injected a further $450 million in April 2022 and is expected to release the remaining $480 million in 2022 in fulfilment of the Government’s capital commitment under the Rights Issue.”

Sakala said Treasury is leading engagements within Government which are aimed at having selected land assets transferred to the Bank as a mechanism for bolstering the Bank’s balance sheet with real assets.

Parallel to this, he said the Bank is working with its Transaction Advisors who are advising on the structuring and issuance of mezzanine and debt instruments to raise long-term capital on the back of identified project opportunities.

The funding requirement for infrastructure and utilities for the national Development Strategy 1   (NDS1) period (2021-2025) amounts to about US$19.7 billion of which US$4.133 billion is required in 2022.

In the 2022 National Budget, the Government allocated about $334,2 billion towards capital expenditure of which $156,4 billion is earmarked for infrastructure delivery.

“The equivalent amount of about US$1,2 billion investments by the Government in infrastructure is commendable, but falls short of the estimated 2022 requirements of US$4,133 billion,” said Sakala.

To cover the infrastructure deficit, he said, the need to promote private sector investment cannot be over-emphasised.

Speaking at an Old Mutual Zimbabwe Investment Summit recently, Sakala said that investments in Transport and Energy infrastructure projects should be a key priority for both Government and private sector players as the two are key enablers to economic turnaround.

He said that other countries in the region are making strides and there are deliberate efforts to identify bottlenecks in the system and do something about it.

He noted that Energy is cross-cutting and each economic sector is dependent upon the two sectors.

In 2019, the World Economic Forum Global Competitiveness Report ranked Zimbabwe 129 out of 149 countries in terms of quality infrastructure.

The country’s infrastructure has over the last decade faced infrastructure neglect, resulting in an infrastructure deficit.

Akribos Research Services in its quarterly report for 2022, said that Public-Private Partnerships (PPPs) should take the centre stage as the main source of funding in infrastructure development to ease pressure on the Government.

It maintained that construction and real estate sector growth is likely to be in line with treasury estimates of 17,40 percent and 1,70 percent in 2022, respectively.

“All these infrastructure development projects have presented growth opportunities for listed and unlisted entities in the construction sector to participate in the sector growth and thousands of jobs have been created for locals.

“However, the worsening inflation and exchange rate depreciation have continued to threaten the viability and sustainability of these long-term infrastructure development projects, given its impact on US$-denominated materials pricing,” it said.

Among other projects, the Government has dualised and rehabilitated most highways and urban and rural road networks, which were declared a state of disaster in 2019. – Business Weekly




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