The Reserve Bank of Zimbabwe (RBZ) is working with the Zimbabwe Stock Exchange (ZSE) and the Ministry of Finance on the development of a government bond market to be used as a benchmark for private issuances.
BY BUSINESS REPORTER
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The move comes after the government, last year, issued securities on a private placement rather than market-based auctions, resulting in a yield curve.
This distortion, RBZ said, has complicated the proper and efficient pricing and valuation of securities.
“The Zimbabwe Stock Exchange, together with the debt office in the Ministry of Finance and Economic Development and the Reserve Bank, are working on the modalities of listing government bonds on the local bourse. Listing of bonds on the ZSE will improve secondary market trading by promoting standardisation and flow of information through disclosure requirements, which in turn would enhance the price discovery process,” RBZ said in its 2015 annual report.
It said the issuance of government bonds would also be driven by the need to have insurance and pension funds comply with prescribed asset status as stipulated by the law.
“The pricing distortions have been witnessed in secondary market trading of long dated instruments, which are subject to half-yearly coupon payments,” the central bank said.
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“Buyers of these securities have taken advantage of the desperation of some sellers by levying ridiculously high flat discounts (of up to 50%) on the principal amounts and totally disregarding all future coupon payments.” RBZ said the listing of long-term government securities would also broaden the investor base in those securities, with potential to lower cost of borrowing.
In his 2016 National Budget presentation, Finance minister Patrick Chinamasa said the government wanted to revert to best practice through the issuance of securities through the auction-based system. He said this would allow the determination of a discernible yield curve, which is a useful tool for the pricing of other market securities.
According to RBZ, the government-guaranteed securities issued in 2015 totalled $87 million. These include the Infrastructure Development Bank of Zimbabwe’s $14m bond, Agro-bills by FBC and Agribank totalling $20m and CBZ’s AMA Bills of $53m.
