HomeNewsGovt mulls empowerment bonds

Govt mulls empowerment bonds

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Government says it will issue a bond to raise money to finance a black economic empowerment fund, which would be set up to support share acquisitions by community share ownership trusts and other groups of previously disempowered individuals.
The fund would be administered by the empowerment board established last month.
Indigenisation minister Saviour Kasukuwere said government would issue the debt instruments once government has agreed on the modalities, but would not reveal when and who would arrange and underwrite the bond issuance on behalf of government.
The instruments are a debt contract through which the issuer mobilises funds from institutional investors or high-net-worth individuals for a specified period, called a life, over which interest, technically known as a coupon, is paid. The principal is redeemed at maturity.
“We will issue empowerment bonds to raise money to fund the black economic empowerment fund,” Kasukuwere said. “We also have other options. But bonds are the most likely.”
The bond plan however would have to contend with two technical hitches.
Firstly, the local bond market is currently dormant from the effects of the current liquidity squeeze in the economy and record hyper-inflation that destroyed the local savings base comprising pension and mutual funds, investment banks and high-net-worth individuals, prior to dollarisation.
It will not be possible to arouse the market with an ill-funded bond.
Secondly, the bond would face a huge discounting in international capital markets. For Zimbabwe to qualify to issue bonds in international bond markets, it needs a high credit rating by international rating agencies, which are currently agreed that the country is not creditworthy.
Government is struggling to retire staggering delinquent debts brought forward from the Zimbabwe dollar era, estimated at over $2 billion or slightly below 50% its nominal gross domestic product of $5,5 billion for the year.
The Reserve Bank of Zimbabwe — whose debts were statutorily assumed by central government last month — has indefinitely rolled over its debts to gold producers owing to a crisis of liquidity.
The bond plan is a response to concerns by markets that government could drag the economy down by muscling an indigenisation programme without the critical financial backing to optimise results.
Its indigenisation model has recently undergone a radical facelift after government agreed with business to temporarily waive its 51% indigenisation equity demands by allowing a blend of both equity, which varies according to sector, and equity-equivalent empowerment credits.
The interim dilution has been proffered to give local industry enough time to recapitalise after a decade-long downturn and potential acquirers enough time to mobilise funds for indigenisation acquisitions.

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