With offshore lending a dead end, Zimbabwe hopes new US$42m bond opens new routes for road funding

Part of the Mvurwi-Guruve-Kanyemba road that Exodus & Co is upgrading

Exodus and Company’s planned US$42 million bond, meant to raise part of the US$360 million needed for a 354km road to the Kanyemba border, may test a new option for funding infrastructure, away from the government’s inflationary route.

Shut out from global debt markets due to debt arrears, Zimbabwe has had to fund critical infrastructure from its own budget, fueling inflation. The Exodus bond will test the local market’s appetite to invest in such projects, potentially easing the burden on Treasury’s shoulders.

The government plans to raise US$360 million for the 354km road to Kanyemba, by raising debt on the local market. The road would cut the route from Zimbabwe to the Zambia-DRC border by close to 600km, possibly attracting freight from other routes in the region. To do this, part of the funding will be raised via a bond, led by Exodus and Company, a contractor that is already involved in government road projects.  

The transaction, to be managed by Platinum Investment Managers Nominees, was approved by government’s External and Domestic Debt Management Committee in May last year, and was tabled in Parliament by Treasury in November and approved as part of the budget. It has now been gazetted.

“The project will be financed through a global loan facility of US$360.5 million which shall be raised through six, US$60 million revolving facility tranches. The government will unlock each facility with a 30% contribution (US$18 million) which will result in a total contribution from the government of US$108 million leaving a balance of US$252 million to be raised,” according to a term sheet for the proposed bond.

“Resultantly, the balance will be packaged into five tranches of US$42 million each and 1 tranche of US$42.5 million.”

Investors will be able to buy a minimum of US$10,000 of the bonds, or pay Z$10 million. They get an interest rate of 10% per annum, calculated on a 360-day basis.

Already, the government has paid out the first US$18 million deposit, allowing work to start. Exodus & Co will be the lead contractor for the Kanyemba project. The company will subcontract some work to other contractors.

The bond’s promoters are fishing for entities looking for a home for their cash, such as pension funds.

“Investors that have ZWL balances have the opportunity to convert these balances to a USD asset that will earn interest in US Dollars. They will also have an opportunity to have the principal to be repaid in US Dollars as well which will ensure value preservation of their investment and will offer a hedge against exchange rate movements of the ZWL against the US Dollar,” Exodus & Co says.

The Kanyemba road project has been given a National Project Status. This means investors will not have to pay the 15% surrender portion for local forex deposits when paying for costs related to the project.

The road plans include the road works, six new bridges, four toll gates and a new border post.


Road less travelled

According to the Ministry of Finance, Zimbabwe needs at least US$3 billion every year to fix its broken infrastructure. However, unlike peer economies that can borrow money abroad to pay for infrastructure, Zimbabwe cannot dip into such funds, due to arrears and the risk brought by US sanctions. The country has had to go it alone.

For 2022, Finance Minister Mthuli Ncube spent 17% of his budget on capital projects. This went up to 26% in the 2023 budget. However, many of the projects stalled last year after the government accused contractors of “forward pricing”, inflating Zimdollar prices to hedge against inflation. RBZ governor John Mangudya admits that using the budget to fund infrastructure was fueling inflation.

Last year, AfDB president Akinwumi Adesina, who is advising Zimbabwe on debt relief, said the country needed to find a new way to fund infrastructure beyond using foreign debt.

“What you find is that in many African countries today, more than 80% of the debt that you see is infrastructure-related debt,” Adesina said. “As we rebuild the domestic economy, (we can have) domestic financing using pension funds, the funds need to be invested in infrastructure. Today, the pension funds and the sovereign wealth funds of Africa, they have about US$2.1 trillion in assets under management, yet Africa has up to US$108 billion a year of the infrastructure financing gap.”

Will investors bite into this road bond? A recent bond floated by Karo Mining raised US$31.8 million. Most of this money was from local investors, who would have bought bonds confident in the future earnings of a platinum mine. It’s a harder sell for the road bond, but the government will be praying that Exodus & Co will find similar fortune. With roads to infrastructure funding closed, the government is desperate for a new route.

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