Slow local bond market uptake worries SecZim

Published: 07 December 2017

THE Securities and Exchange Commission (SecZim) says it is worried about the slow uptake of bonds listed on the local markets. Bonds are a debt security under which the issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay them interest the coupon and or repay the principal at a later date, which is termed the maturity.

SecZim chief executive officer, Tafadzwa Chinamo, last week challenged market players to mobilise resources and ensure that the country has a vibrant bond market. "We are concerned about the bond we have on the Zimbabwe Stock Exchange (ZSE) that is not trading well. The world over, the bond market is bigger than the equities market, but here we seem to have forgotten about that," he said.

In August this year, microfi nance institution GetBucks was forced to move its $15 million second series medium-term note to private listing due to low uptake on the ZSE. The low uptake on GetBucks bond at a time when the local stock exchange was performing exceptionally well was contrary to inherent benefi ts of the bond markets.

Market experts say the volatility of bonds, especially short and medium-dated bonds, is lower than that of equities. Thus bonds are generally viewed as safer investments than stocks. Bonds are often liquid it is often fairly easy for an institution to sell a large quantity of bonds without affecting the price much. Zimbabwe re-introduced the bond market in April this year 16 years after it was closed in a move that was aimed at giving investors choice to diversify their portfolios and mitigate risk. Chinamo said the coming in of President Emmerson Mnangagwa might herald the beginning of a new economic era that will result in an active bond market. "I hope that with the new dispensation, we are likely to see more bond listings on the local markets," he said.

The Infrastructure Development Bank of Zimbabwe (IDBZ) last week became the second company to list on the bond market with indications that Untu Capital will this month also list on the Financial Securities Exchange (FINSEC). FINSEC chief executive Collen Tapfumaneyi said the listing of the $65 million IDBZ bonds demonstrates confidence in local capital markets and "is an important signal to both local and international investors that indeed our economic recovery and growth is well and truly underway".

"The new political dispensation provides further impetus for accelerated growth and development of our infrastructure to prepare our country for the anticipated upsurge in investments, as well as upscaling and retooling of local industries," he added. Finance Ministry permanent secretary Willard Manungo said the maiden listing of the energy bonds was a very positive milestone which provides flexibility to investors in terms of investment period, and also helps IDBZ to achieve its objective of deepening capital markets. "In addition, the debt capital market continues to provide a viable alternative investment avenue for institutional investors.

Therefore, in the fullest of time, we expect the debt capital market to grow to the same levels as our already developed equities market," he said. Manungo further indicated that going forward government will continue to work with the infrastructure development bank to ensure that it is well capacitated to enable it to strategically fulfil its mandate in infrastructure development. "On its part, the bank structures its infrastructure bonds as self-liquidating instruments on the back of cash flows from the underlying projects, while government lends its support to the bank's capital raising initiatives by providing various enhancements which make the instruments attractive to investors," he said.

The support includes issuing government guarantees, tax exemption status and prescribed asset status. "It is also important to note that while the bonds are guaranteed by Treasury, the bank's instruments continue to perform in line with their terms and conditions, without any incidences of missed or delayed payments. This is testimony to the bank's structuring capability and the credibility of the instruments," Manungo said.

- Fin Gaz