16 March 2017

Zimbabwe: Infrastructure Bonds to Face Hurdles

ANALYSTS have warned that a government plan to raise US$2 billion offshore for infrastructure projects at State-owned tertiary learning institutions is likely to face hurdles, with the country's poor debt repayment record likely to be a major factor.

Government plans to raise US$2 billion from infrastructure bonds to build student and staff accommodation, lecture halls and laboratories at tertiary learning institutions.

It appointed CBZ Bank as its financial advisor for the cash raising exercise.

Never Nyemudzo, the group chief executive officer of CBZ Holdings, the controlling shareholder of CBZ Bank, said they planned to issue the bonds outside the country.

But analysts said promoters of the cash mobilisation project should expect challenges. Zimbabwe is hard to sell abroad, they said, pointing out that the country was not only having trouble attracting foreign investors but that it had proved to be a bad debtor. They said this reputation could stand in the way of the cash raising initiative abroad.

Economist, Prosper Chitambara, does not believe that CBZ would be able to raise that kind of money on behalf of government.

"The political and economic instability in the country will scare away any potential investors," he said.

John Robertson, another economist, said Zimbabwe would be affected by its poor debt repayment record.

"That is going to make the issue of these bonds very difficult. It is unlikely that they will be well supported."

Robertson believes that even if high interest rates were offered, these may still not be enough to overcome the risk factor.

"Lenders around the world at the moment are getting very low interest rates from western borrowers so they may believe that good interest rates from Zimbabwe maybe worth getting but that is discounted by the risk that they may never be repaid," he noted.

Nyemudzo said CBZ would announce features such as the expected yield and government guarantee in the next three months after a feasibility study. He acknowledged the difficulties standing in the way.

"We are quite aware of the economic situation not only in Zimbabwe but in the region and beyond. Therefore we expect protracted processes," he said.

"The success of this project depends on the guaranteed rate of return and security of investment and for this, government support is paramount. The bonds would need a government guarantee, should be given prescribed asset status and a national project status."

CBZ will receive a commission of 1,5 percent from the amount raised and during the feasibility studies all costs would be on a tab basis to the ministry.

Government has 20 universities, 15 teachers' colleges, eight polytechnics and five industrial colleges with a total enrolment of 152 529 students and a staff complement of 18 153.

The Higher Education Infrastructure Bond was mooted together with the Road Rehabilitation Bond but the latter is yet to be set up.

Zimbabwe

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